Don’t you hate leaving money on the table?
You don’t want to leave money on the IRS’s table by paying too much in taxes. Many owners of cannabis-touching businesses miss out on legal ways to reduce their tax bill. What are some of the most common tax savings that owners in the cannabis space miss out on … and why?
Most company owners understand the basics of business taxes: the company gets paid taxable dollars for the products it sells and, in the normal US economy, many of the costs can be deducted.
The problem with a cannabis-touching business is that an IRS rule affecting controlled substances (IRC § 280E) prevents the cannabis business owner from deducting the common expenses every other business enjoys.
In the cannabis business world, proper accounting that begins long before tax season is essential to maximize legal tax savings. Cannabis owners need to use more complex forms of accounting—accrual accounting and full absorption accounting—to pay as little in taxes as is legally possible.
In summary, as a cannabis business owner you can write off the costs allocated to producing cannabis products if you follow the tax laws and regulations that apply to inventories. Those write-offs depend on documentation of and adherence to the accounting rules that apply to the cannabis business.
How do you avoid getting deceived into costs that don’t legally reduce your cannabis business taxes? Check out Harborside or Altermeds v. the IRS Commissioner US Tax Court. Two main factors affected these companies: poor accounting and use of “management companies” set up solely to avoid taxes. A cannabis-smart CPA could have prevented those problems.
You started your business to make money. Hire a good CPA with cannabis experience to make sure you do!
What costs might you be able to use toward your Cost of Goods Sold (COGS)?
Depending on your business products, you may be able to reduce taxable income to the extent the following were used to produce inventory:
seeds nce, cleaning supplies, as well as some tools and equipment/ rental equipment
Dispensaries, too, can deduct more than the cost of product for resale. Well-documented, not a swag or giveaways, at costs directly related to inventory management may be deducted.