Cannabis Industry Accounting Services
If you are operating in this sector, you are familiar with US Code 280E. Due to the unique regulatory environment US Code 280E creates for marijuana businesses, owners cannot afford to work with inexperienced and unlicensed tax preparers and accountants.
280E Background
Marijuana businesses income tax returns are governed by US Code 280E. 280E was passed by the US Congress in 1986 to prevent “illegal drug traffickers” of Schedule I and II substances (Controlled Substances Act) from filing a tax return with deductions and keeping ill gotten proceeds. Marijuana continues to be listed as a Schedule I substance and the Internal Revenue Service (IRS) actively enforces 280E against legal marijuana business owners in all states. The US Tax Court has upheld the legality of the IRS applying 280E to legal marijuana business in two significant cases, CHAMP & Olive.
How 280E Affects You
280E prevents an owner from taking tax deductions for significant expenses associated with selling such as advertising, budtender wages, rent costs, signage, and certain improvements. Inventory production costs associated with the grow, cultivation, or production of an extract or infused product are allowable tax deductions.
Under 280E, tax is assessed by the IRS on gross income (sales – production costs) instead of net income (sales – (production costs – admin costs – selling costs)).
The tax strategy is accomplished by reviewing a marijuana facility’s operation and properly allocating deductible and non-deductible expenses.
If you are operating in this industry, contact us for an appointment. Even if you are just making plans, you need to understand your tax and accounting strategy now. Call us!