Did you know that a total of 55 corporations paid $0.00 taxes on their profits last year?
While corporation tax differs from cannabis business tax, that doesn’t mean you can’t use tips and tricks to save money. Being strategic and frugal can mean the difference between thriving or failing as a business.
Are you wondering what you can do? Keep reading to learn all about how to pay less taxes on your cannabis business.
Table of Contents
Maintain the Best Bookkeeping
If you’re wondering how to pay less taxes, then you have to be diligent with your record-keeping. It’s often best to act like you’re going to be audited because there’s always a chance it could happen.
The longer an audit lasts, the more money you’ll have to spend. With perfect records, the process will be much smoother and cheaper.
For example, a clear record-keeping process can make it easier for tax experts to reconcile accounts in the event of an audit. A freelance firm or in-house tax professional can ensure that your bookkeeping methods are sound and up-to-date. They can even help you transfer all your relevant documents to a digital format for quick and easy access.
280E can be a complicated tax code to navigate. This is why any tax expert you hire should be knowledgeable when it comes to the cannabis industry in particular. Simply put, a reliable expert is essential for saving money on your taxes and further growing your business.
Over time, it’ll become necessary to have a full-on accounting department that will ensure your business is staying well within the tax law despite all the complexities involved.
Change Your Business Structure
When it comes to paying less taxes, you could even take measures to alter your business structure and take advantage of a tax loophole.
There are a lot of limits to deductions if you’re business is strictly within the confines of selling cannabis products. This makes it much more expensive to run a cannabis business than other types of businesses. With this in mind, you can increase your deductions by splitting your business in two.
The first ‘half’ of your business would be dedicated to filing taxes on cannabis sales and the sale of any other cannabis-type products. The deduction benefits come into play as you file for the second ‘half of your business.
This business has nothing to do with cannabis in a direct way. Whether you’re selling medical marijuana care services, merchandise like t-shirts and hats, or all the above, you can deduct as much as possible. This even includes property and taxes associated with that.
By claiming all of the traditional deductions that non-cannabis businesses are able to, you’ll be saving a lot of money on your taxes. If you’re worried about the legality of this strategy, all you have to do is look at Champ v. Commissioner. This impressive court case demonstrates that such a move is well within tax law.
This would involve an attachment on the 280E section of your taxes and can be complicated to handle. This is why it’s crucial to have a team of knowledgeable cannabis tax professionals on your side.
Deduct Cost of Goods Sold
If you’re still thinking about how to pay less income tax, you must know about the specifics of the IRS tax code 280E. Not only does it forbid tax deductions for the trafficking of illicit drugs, but it also doesn’t allow deductions for the selling of Schedule I and II drugs.
Created in 1981, this tax code came about after a cocaine seller wanted to deduct the cost of his operations as one would a traditional business. It’s an unfortunate fact that cannabis is still classified as Schedule I despite being legal in various states.
Due to 280E, you won’t be able to deduct employee wages, rent, and other traditional expenses, unless you take advantage of the loophole. The good news is that you can still deduct the price of goods sold even without splitting your business in two.
Are you wondering what the cost of goods sold means exactly? To put it in the simplest terms, it refers to the exact costs that come from the production of your goods. As for cannabis businesses, this deduction would include the cost of transporting the cannabis to your locations, as well as the cost of the product.
The IRS is careful when it comes to approving deductions, especially when they fall under the cost of goods sold category. With this in mind, you shouldn’t put any other deductions there unless you want to instigate an audit. If you still get audited and can’t get the situation resolved, tax experts can help take your dispute to a U.S. tax court.
Even if you have to pay liability, a tax team can help you get a refund by submitting a request at the courts.
If you want to learn even more ways you can lower taxes, then it’s best to look into what incentives and breaks are offered within your specific state.
Are You Ready to Pay Less Taxes?
Now that you’ve learned all about how to pay less taxes on your cannabis business, you can put that money toward more growth. No one should have to pay more taxes than what they owe.
Not only can Polston ensure that you save money on your taxes, but our expert team can also ensure that every tax season is as smooth and efficient as possible. From state tax and tax court representation to wage levies and offers in compromise, we can take care of everything you need.
Do you have questions about our high-quality services? If so, please feel free to contact us and we’ll be sure to get back to you soon. We’re always happy to offer our potential clients expert guidance and assistance.
More On Cannabis CPA Accounting & Tax Services
- Cannabis CPA Accounting & Tax Services
- A Cannabis Tax Preparation Guide for Business Owners
- How to Structure Your Marijuana Business: Incorporation vs. LLC
- Marijuana Banking 101: How to Manage Your Money in the Cannabis Business
- Should You Hire a Marijuana Lawyer for Cannabis Tax Audits?
- Cannabis Tax Season: How to File Marijuana Taxes
Additional Readings
Sales tax is paid to a local or state governing body for the sale of certain services and goods. In Oklahoma, the state sales tax is 4.5%, which is charged on sales of certain services and tangible personal property. Along with the state sales tax, local sales taxes and special district taxes may apply. Business owners...
If you have been struggling to pay the bills or your taxes, you may receive a notice that a garnishment or levy has been placed on your wages or bank account. Even if you make every effort to pay your back taxes, your circumstances may make paying your taxes difficult, such as a job loss...
There are a few different Internal Revenue Service (IRS) professionals, including revenue officers and revenue agents. If you owe back taxes or you’re facing a tax audit, you may work closely with an IRS revenue officer or revenue agent. We cover the differences and similarities between these IRS tax professionals to help you understand who...
Have you received a notice from the IRS informing you that you owe more in taxes? These “30-day letters” can result from an audit, underpaying your taxes when filing a return or many other reasons. While receiving one of these notices can be unsettling, it doesn’t necessarily mean you have to pay the amount the...
If you can’t pay your taxes this year, you may be worrying about what you should do. First, you should know that you’re not alone. Millions of taxpayers struggle with taxes each year and need help. The good news is there is help available. The IRS will work with you and provide options for paying...
According to study results, the majority of Americans dread taxes. One of the reasons why most people get stressed at the mere thought of taxes is because the tax code is so intricate. The other is the legal/financial ramifications that can result from misreporting your income. Whether you’re an individual in need of tax relief, a...