Ways to Lower your 280E Taxes
A regular company can deduct their expenses from rent, utilities, insurance, and maintenance, while marijuana retailers cannot deduct these expenses. However, all retailers can adjust their taxable income based on the costs of the goods they are selling.
The traditional retailer ends up with the double income of a marijuana retailer despite the same expenses, but this is how to get around it:
The things we already know: Section 280e is one of the hindrances in the cannabis industry. Federal statute forbids businesses to deal with schedule I or II controlled substances from deducting ordinary business expenses from their taxable income. Management, rent, distribution, promotion, sales, payroll, administration, and support fall under "ordinary expenses."
It might then seem like the IRS are interested in auditing the cannabis industry. From the results, statistics, and comparisons with non-cannabis industries, the IRS is making a bang on the taxes marijuana enterprises have to pay. However, the point is not what they are doing to marijuana-owned businesses but what we can do to help you run your company successfully.
Tip #1 - Document Absolutely Everything
It is not a surprise that cannabis industries require acute attention to detail and documentation every step of the way. Anything from assignment within the business must have strict documentation. There is a risk when audited by the IRS that they will ask for documentation outline of the cost of goods sold, and not having that can result in being fined for an inaccurate tax return if you have no proof. Moreover, cannabis businesses are more likely to be subjected to frequent IRS audits than any other businesses, so keep everything registered and up to date.
Tip #2 - Set Yourself Up As a Corporation
Closely look into the difference between S Corporations and LLC (limited liability corporations), which are typical for small businesses or C-corporations, which become attractive when phantom tax income becomes relevant.
"Understanding and managing phantom income is essential in any cannabis business," says, Tax Attorney, Nick Richards
Tip #3 - Consult with experts
That is why WE are here for. We cannot stress enough how incredibly important it is to work with experts and seek guidance in tax filing, accounting and compliance. We will help you find what the best way to run your company is and not let you walk away unless you have all of your questions answered and all the knowledge to run a legally and successful business.
Tip #4 - Assign clear employee positions
Make sure every employee has a specific position in the company regarding production or retail operation. It will allow more accurate reports on wages and an easy way to keep your company out of trouble, especially penalties. Besides tracing the time and dating when employees are working, also write down the tasks they are performing to avoid additionally unnecessary fines.
Tip #5 - Support for Change
The cannabis community must come together and support the unfairly treated businesses. However, it does not mean that we all have to demonstrate on the streets and write constant letters to the IRS, but to lift the issue and help organizations and groups that daily advocate for equality. We are all here to make our business successful and grow as much as possible. Even though cannabis-owned businesses are still considered a schedule I illegal substance, federal enforcement is trying to have a path for the hemp industry thanks to partners in our country. So keep contributing with however much you can, but know that, we are here to help you.
Far from done but on the way
Even though there is still a lot of work to do, the future looks bright. With the right people in charge, the effect of section 280e can become less severe, so we have to keep working. Therefore, look for new updates on the blog and remain critical of the sources you are using. Always check with us before deciding on your company. Reach us here.