With now over 30 states legalizing either medical or recreational marijuana, more people are deciding to open a business within the industry to try and capitalize on the new changes. While owning a cannabis business could prove to be profitable, there are serious tax implications. While state regulations and taxes can vary state to state, federally, all cannabis businesses are treated the same.
Because marijuana is federally illegal, businesses in that industry are treated differently from other businesses. For instance, the IRS allows cannabis businesses to only deduct Costs of Good Sold, no other ordinary or necessary business expenses are allowed. This is due to Section 280E in the Internal Revenue Code. 280E forbids business from deducting otherwise ordinary business expenses from gross income associated with “trafficking” of Schedule 1 or 2 substances. This means while other businesses can deduct their payroll, rent, utilities and other business expenses, cannabis businesses cannot. This means you will pay a substantially larger amount in taxes than all other businesses.
As a cannabis business, not only are your deductions limited, but you are going to get audited. The IRS has come out publicly and said it’s not a matter of if cannabis businesses will be audited, but when. As a company that can only deal in cash, take minimal deductions and not have the option to deposit your money in the bank, you must as a business take meticulous records and keep all receipts in the event of an audit.
Here’s the good news – We have a team of tax attorneys, CPAs, and accountants who have studied the case laws and done research over the cannabis industry and the tax implications that come with it. They have determined how best to structure businesses and how to keep your business running while staying in compliance and can assist you if you are audited. Call us today at 844-841-9857 or click below to schedule your free consultation.