Cannabis Business Tax Guide

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Here’s what you can expect when your file your Cannabis Business taxes

Its that time of year again – Tax Season.

Given that 2019 is the first year of operations for many legal cannabis businesses, it’s important to get your taxes done early and correctly.

It’s not only important to prepare for your taxes but to plan for your taxes.

Our next articles in this series will cover the essentials of what a tax plan under the Tax Reform rules looks like for your cannabis business.

This checklist details the aspects of preparing to file your taxes.

Its that time of year again – Tax Season.

As a cannabis business owner you can expect a lot of scrutiny from both state and IRS agents who will be looking for reasons to penalize those who are not compliant.

If this recent court case of Harborside vs. the IRS is any indication, the tax authorities are showing no mercy in prosecuting negligent or non-compliant cannabis operators.

And on a side note, contact us if your business sells both Farm Bill compliant and non-compliant Hemp base products as your tax and accounting strategy will need to be reviewed.

The good news is that with these tips you’ll be prepared. .


General Information

Income

  • Gross receipts
  • Returns and allowances
  • Business checking/savings account interest (1099-INT or statement)
  • Other income

Cost of Goods Sold

We recommend that you talk with your tax professional or contact us regarding what’s able to be deducted as part of your cost of goods sold (CGS) as the rules to what’s included depend on your business model.

This area of guidance happens to be least understood and the largest audit risk that cannabis companies have concerning their tax strategy. For proper guidance we recommend following the latest IRS court cases and hiring a competent cannabis cost accountant to prevent you from owing millions.

Our CPAs have years of cost accounting experiencing that they’ve gained while working at the Big 4 public accounting firms.

Expenses

  • Advertising
  • Bank charges & finance fees
  • Commissions / fees
  • Contract labor: Forms 1099-MISC and 1096
  • Computer & internet expenses
  • Health insurance: including premiums paid to cover the sole-proprietor and family and premiums paid on behalf of partners and S corporation shareholders
  • Insurance
  • Interest expense: including mortgage interest on building owned by business or business loan interest
  • Meals & Entertainment
  • Office supplies: Pens, paper, staples and other consumables
  • Mortgage interest or rent paid
  • Homeowner’s or renters insurance
  • Utilities
  • Rent expense: office space rent, business use vehicle lease expense, or other equipment lease
  • Repairs / maintenance
  • Supplies
  • Taxes / licenses
  • Transportation and travel expenses
  • Wages paid to employees:Form W-2 and W-3
  • Federal and state payroll returns (Form 940, Form 941, etc.)
  • Employee benefit expenses
  • Other business related expenses

Please note that many of the expenses listed above may not be deducted because of tax code 280E.

Its important to speak with a CPA who is well-versed in cannabis regulations to ensure you’re doing everything possible to reduce your tax burden.

Federal Taxes

Though cannabis is technically still a Schedule I drug, cannabis operators are still responsible for filing a tax return with the IRS.

The type of return you file will depend on your business entity – the way you’re structured.

The main difference in filing your taxes as a cannabis operator (versus a regular small business) will be in the deductions, credits and records you’ll be asked to submit at the time of your filling.

Remember, the 280E dictates what you can and can’t take as a deduction.

We suggest working with a CPA firm that has cannabis industry experience to make sure you’re completing the right forms and taking the proper deductions.

State Taxes

State taxes vary, of course, depending on where you are. To find the cannabis tax rates in your state, check this helpful guide.

City & Local Taxes

Cities and counties may impose additional taxes to produce revenue for their community. To find your local tax regulations, contact your municipality.

Contact our team today

To get help on your cannabis business taxes contact our CPA’s today.


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