IRS finally issues guidance for the cannabis industry

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Cannabis Tax Planning

The second component of entity structure is dealing with regulatory agencies – how likely is it that tax courts, the IRS and state governments agree with your classification of entities? In recent tax court rulings, we have seen many cannabis companies try to abuse entity structuring for their benefit to no avail. Long term sustainability means learning from others what doesn’t work as well as applying from other industries what does work. Successfully navigating the complex world of cannabis business taxes requires a deep understanding of the tax laws at the federal, state, and local levels, meticulous record-keeping, and strategic business planning.

IRS (finally) issues guidance for the cannabis industry

Baker Tilly takes pride in being a business leader working with those in the cannabis industry to handle all of their accounting, tax and business consulting needs. Our Cannabis industry Value Architects™ have unrivaled experience and dedication to working with cannabis clients and understand the uniqueness of the industry and the depths of the concerns without federal protections. Please reach out to ask questions and develop insightful strategies for the short-term and long-term needs of your business. Cannabis businesses have no exemption from their employment tax obligations, and as with other small businesses, they often need to make quarterly tax payments. These business owners should always pay their taxes on time to avoid interest and penalties.

Cannabis Business Valuations

Navigating the intricate tax landscape of the cannabis industry is a challenge that every Cannabiz owner must face. Tax laws at the federal and state levels are complex and ever-changing, making it essential for cannabis companies to have a comprehensive tax planning strategy in place. In this blog post, we’ll explore effective tax planning strategies tailored to the cannabis industry and how ReeferCFOSolutions can help you minimize tax liabilities and stay compliant. In addition to impacting the financial and regulatory aspects of the cannabis industry, state, and local taxes can also influence market dynamics. For instance, high tax rates can discourage consumers from purchasing cannabis from legal cannabis retailers and drive them toward the illicit market. On the other hand, lower tax rates can encourage more consumers to buy from legal sources, helping grow the legal cannabis industry.

Cannabis Tax Planning

Navigating State and Local Taxes

Cannabis Tax Planning

Business owners assume they are making money when we have closed the books, resulting in an operating loss for the business. Make sure you take the time to review your books and tax return with your experienced cannabis tax professional. Ask questions to make sure either expenses or vendors that may qualify as part of goods sold are not either miscoded or misclassified in selling, general and administrative expenses. https://www.bookstime.com/ Ask any accountant specializing in cannabis in 2017 and they would tell you – “You have to boost your cost of goods sold! This honeymoon has come to a quick end as the IRS is continuously winning cases in tax court against cannabis companies that claim very high cost of goods sold numbers. At Greenbooks, we have a responsibility to advise to keep this number within the confines of what we believe the IRS will accept.

This tax code was enacted in 1982 primarily to prevent drug traffickers from claiming tax deductions. However, its impact is now felt by legal cannabis businesses, which are essentially treated as drug trafficking enterprises under federal law for tax purposes. State and local taxes can significantly impact the bottom line of cannabis businesses.

Prepare to revolutionize your approach and reign supreme in the realm of cannabis entrepreneurship with the expertise and guidance of Sandy Suchoff. The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by AAFCPAs to the user. The user is also cautioned that this material may not be applicable, or suitable for, the user’s specific circumstances or needs, and may require consideration of non-tax and other factors if any action is to be contemplated. The user of this should contact his or her AAFCPAs advisor prior to taking any action based on this information. AAFCPAs assumes no obligation to inform the reader of changes or other factors that could affect the information contained herein. In some states, there are sales tax breaks for the purchase of equipment or materials used in agricultural manufacturing activities.

Biden on marijuana reclassification

  • There are several methods of depreciation, and your CPA can help you determine which will be compliant and make the most sense for the financials of your business.
  • Where banks were once hesitant to offer full financial services to cannabis dispensaries for fear of sanctions, the 2021 act now protects banking institutions offering services to lawful cannabis-related businesses.
  • That’s because cannabis companies are cash-heavy businesses navigating financial workarounds and banking restrictions in order to operate compliantly.
  • With states rapidly approving marijuana legislature, cannabis sales are quickly becoming a large component of the American economy.
  • You need to stay current on all taxes, including excise taxes, income taxes, and payroll taxes.
  • BGM CPA, LLC and BGM Group, LLC practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards.

Whether you’re a cultivator, manufacturer, distributor, or retailer in the cannabis industry, our team is equipped with the knowledge and expertise to address your unique accounting and financial challenges. Trust us to be your dedicated partner, delivering comprehensive services designed to support your success in this dynamic market. While the current tax regime is challenging, there are opportunities for reform and improvement. By cannabis accounting staying informed and proactive, cannabis businesses can survive and thrive in this evolving industry. While the current tax regime poses significant challenges for cannabis businesses, there are opportunities for reform and improvement. These professionals can provide valuable advice on structuring the business to minimize tax liabilities, ensure compliance with all tax laws and regulations, and help prepare for potential audits.

  • This classification has significant implications for cannabis businesses when it comes to taxation.
  • As of early 2023, cannabis-related legislation for both medicinal and recreational use has passed in numerous states.
  • Operating a legitimate cannabis business while navigating the intricate labyrinth of federal, state, and local taxes can be daunting.
  • It’s tricky from a business perspective, because even though states are legalizing marijuana and treating its sale as a legal business enterprise, it’s still considered a Schedule 1 controlled substance under federal law.
  • And while there are 14 states that still ban cannabis use, we expect both unlicensed and licensed marijuana businesses to grow.

She has seven years of experience as an analyst on William Blair’s Dynamic Allocation Strategies team, which was responsible for global macro research. She also served in the Swedish Defense Forces, including two missions in Kosovo, and has worked for the Swedish foreign ministry in Russia. Her writing has appeared in economics journals including The Journal of Institutional Economics, The Review of Austrian Economics, and the Financial Times.

Why Moore v. U.S. Won’t Get Us a Consumption Tax Base

Many cannabis-focused investment shops opened during the bubble, when investors were throwing money at anything that smelled like marijuana. Several have lost more than 60% of their initial value and have conjured cannabis-market benchmarks to rationalize this massive wealth destruction. An additional advantage of C-corporation tax treatment may be a lower tax rate applied to taxable income. Würk is the business you can trust with all your Payroll needs, covering everything that is necessary for your cannabis business to operate smoothly. If 280E is not managed properly, profits can erode quickly by increased tax liabilities… and in some cases, be wiped out completely.

Engage an experienced cannabis tax professional for a 280E analysis

Our cannabis accounting firm specializes in helping cannabis businesses accurately calculate and allocate COGS, ensuring that you meet compliant standards, while at the same time legitimately maximizing these deductions to optimize savings. By employing industry-specific cannabis accounting strategies, we can help you streamline your operations, reduce tax burdens, and enhance profitability. Changes are also likely at the state and local levels as governments refine their tax policies to support the cannabis industry better. Some states are already considering changes to their tax structures, such as shifting from price-based taxes to weight or potency-based taxes.

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