Accounting and tax services to the Cannabis & Hemp Industry Article
Cannabis and Hemp industry includes licensed medical and recreational marijuana dispensaries, cultivation facilities, farms, infused product facilities and quality control testing labs.
Due to the regulatory environment US Code 280E creates for these businesses, it is important for companies to work with experienced tax preparers and accountants, etc.
280E Background
Marijuana businesses income tax returns are governed by US Code 280E.
Passed by US Congress in 1986
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 illegally 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.
US Tax Court Cases
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 does not allow 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)).
Financials You Can Trust
“Solid”, reliable books and records for the long-term gives shareholders/owners peace of mind.
Not only does this save you time and money and distraction from your business, it means you and your company are ready for negotiation and company valuation in a moment’s notice.