The cannabis industry has exploded in recent years. It’s quickly become the wild west with companies looking to get in on the ground floor of this industry.
While the laws around cannabis are changing fast, and there are a lot of financial issues that are murky at best. While many states are legalizing marijuana on some level, it’s still illegal at the federal level. That can make things like opening a bank account a challenge.
Read on to find out what a cannabis bookkeeper does and how they can help your business.
The laws and regulations around cannabis seem to change on a daily basis. States are trying to adopt new laws and local authorities are trying to manage this new industry, too.
For example, banks are reluctant to take on cannabis businesses as clients. Even though it’s legal in some states, it’s still illegal at the federal level
Banks don’t want to take any sort of risks with federal regulators, so they simply won’t work with cannabis businesses. This can make it extremely difficult to get a bank account.
An accountant with experience in the cannabis industry will be able to help you find a bank that is willing to work with you.
Help with Tax Obligations
Most businesses have tax obligations like payroll and estimated taxes to deal with. For your business, you have a bigger tax burden.
You want to work with a firm that can handle not just managing your books but can help you with tax planning and preparation.
Section 280E Assistance
The IRS is looking at cannabis-based businesses with a very watchful eye. They’re using a part of the tax code to heavily scrutinize tax deductions.
This is the IRS code Section 280E, which was created in 1982. This was part of former First Lady Nancy Regan’s anti-drug crusade.
According to the tax code, businesses that sell or distribute Schedule I or Schedule II drugs cannot claim tax deductions or tax credits. Of course, marijuana is still on the books as a Schedule I drug. Some cannabis medicine though was recently reclassified as Schedule V.
For any small business, that can be devastating because you have to pay the full tax amount on your revenue.
There is one exception in the law, which allows a marijuana company to deduct the cost of goods sold. The IRS still does not make this deduction easy for companies to claim.
You need an experienced bookkeeper on your side who understands the law and can tell you what you can and cannot deduct from your business.
Get Through an Audit
Let’s say that you have a bookkeeper who understands the law and gave you perfect guidance. There’s still a high chance that your business will be audited by the IRS.
Since many legal businesses are still cash-based businesses, the IRS will take a very close look to make sure you paid your taxes and everything was filed correctly.
Even at the local level, audits are common. In San Diego, dispensaries are being targeted for tax audits to make sure that the city is getting its fair share of tax revenue. These audits are also giving the auditors names of the distributors, who will also be targeted for tax audits.
With so much scrutiny for your business, you need to make sure that your accounting and bookkeeping processes are crystal clear. That’s what a cannabis bookkeeper will do for your business.
GAAP Matters to Your Business
Accountants and bookkeepers use Generally Accepted Accounting Principles when doing the books for your business. This is a standard set of procedures that businesses are expected to use.
Your bookkeeper will make sure your business uses these principles, so there are no questions from the IRS or local tax authorities.
A Team That Delivers
Hiring a bookkeeper who is knowledgeable in the latest laws and regulations will only help your business. You’ll get a team of accountants who are there to look after you and your interests.
You have to know that the advice you get from your accountant is to protect your interests. Failing to comply with them could land you in big trouble. That’s what happened when one business owner in Oregon failed to follow the advice of a few CPAs.
He wound up becoming the first person in the country who was running a legal marijuana business to be sentenced for not paying taxes.
A Cannabis Bookkeeper Gives You Peace of Mind
It’s challenging enough running a cannabis-based business. You have increased competition, changing political and legal landscapes, and you still have a business to run.
There’s much more to running a cannabis business than you realize when you first get into it. You’re under a microscope from a legal and tax perspective. One wrong move on your part and you could lose your business or go to jail.
That’s enough to keep anyone up at night. When you work with an experienced bookkeeper who is well-versed in tax laws around marijuana businesses, you can bet that you’ll sleep much better.
Hire a Cannabis Bookkeeper
You started your cannabis business because you wanted to follow your passion and make a big profit. It’s an uphill climb for many business owners. For cannabis businesses, regulations and taxes make running a venture confusing and more challenging.
It doesn’t have to be that way when you have a cannabis bookkeeper. You need someone on your side who can deliver tax and accounting help. That will enable you to deal with the big responsibility you have of being a cannabis business owner and have peace of mind.
If you want help navigating the changing world of cannabis tax law, contact us today.
More On Cannabis CPA Accounting & Tax Services
- Cannabis CPA Accounting & Tax Services
- How did CHAMP v. Commissioner Change Things for Cannabis Businesses?
- Everything You Need to Know About Paying Marijuana Tax
- Marijuana Banking 101: How to Manage Your Money in the Cannabis Business
- Tax Information for a New Marijuana Business
- Estimating Medical Marijuana Tax: A Guide for Cannabis Businesses
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