Under the current federal drug laws codified in the Controlled Substances Act (CSA), it’s illegal to use, buy, or distribute cannabis in the United States. Although CSA prohibits the sale of marijuana, the internal revenue service (IRS) still requires CannaBusinesses operating under various state laws to report and pay income tax properly.
Delay or failure to file tax returns can attract hefty penalties and interest. To avoid risks and stay in business, cannabis businesses must remain in good standing with the IRS and comply with Internal Revenue Code (IRC) provisions. But calling the cannabis business tax laws confusing would be putting it mildly.
Navigating this very murky area of tax law can be challenging, but 420 Accounting Services can help. We are a California-based firm specializing in accounting, taxes, and financial services for cannabis businesses. Read on to learn how we can help your cannabis business remain in compliance with IRC provisions and IRS regulations.
IRC 280E prohibits cannabis businesses from deducting typical business expenses incurred in the sale of cannabis. When that happens, cannabis business owners might end up overpaying taxes. However, a tax accountant can help you develop a smart workaround for IRC 280E to reduce your taxable income.
Differences in the Application of 471-3 and 471-11
IRC 471 defines what you can and can’t put into inventory costs. The point is to classify certain expenditures that qualify as costs and that can be inventoried and reduce taxable income as the inventory is sold. This is where a cannabis CPA can add a huge value. Businesses in the cannabis industry can now pay taxes on money that has been officially transacted and exclude outstanding receipts and bills from their tax filings, thereby reducing their tax burden.
IRC 471-3 is the best option for retailers/dispensaries, while IRC 471-11 is best for cultivators, extract/processors, and edible producers. It requires GAAP if you want to maximize what is included in COGS.
In addition to IRC 471 explained above, there are other ways for cannabis business owners to reduce their tax burden. For instance, while IRC 280E prohibits cannabis businesses from deducting typical business expenses, cannabis entrepreneurs may still reduce their gross income by subtracting the Cost Of Goods Sold (COGS).
This means you can subtract the direct cost of producing or purchasing inventory from gross receipts, significantly reducing your tax liability. You may be able to include indirect costs depending on the role of your business in the production or purchase of inventory.
Compliant Tax Guidance Services for Cannabis Businesses
Even as the marijuana industry grows and matures, cannabis compliance isn’t getting any easier. Compliance requirements vary greatly depending on the state and the city or county you plan to operate. It is essential that you meet all necessary tax compliance requirements to operate legally.
That’s where compliant tax guidance services for cannabis businesses, such as 420 Accounting Services, come in. An experienced cannabis financial consultant can help you remain in compliance with all tax filing requirements, rules, and regulations in your state, city, or county.
Ensure Your CannaBusiness is in Compliance with the Help of 420 Accounting Services
Staying on top of evolving regulations and requirements is challenging for most cannabis entrepreneurs. Therefore, cannabis businesses must rely on experienced professionals to navigate compliance laws, exemptions, and nuances. Ensure your CannaBusiness complies with the help of 420 Accounting Services.
Our professionals are ready to help you navigate this murky legal and regulatory landscape. Our company is based in California, but we serve cannabis businesses all over the country. Contact us to see how our team of experienced cannabis accountants can best serve your needs.