Cannabis has been illegalized, then decriminalized, only to be criminalized again over the years. Especially with legitimate businesses growing left and right, it's safe to say that it will remain decriminalized and illegal. You're going to need help, and we're going to be right here, ready to help you!
It might seem problematic because it is very complicated. Cannabis entrepreneurs are therefore hustling for their businesses to stay alive. With everything the states keep throwing at them, including sky-height taxes, we can all sum it up in one phrase = Tax Code 280E. Because of section 280E, most of the cannabis companies' earnings go back into taxes. You might think that the taxes are sky-high at 50%, but the truth is that most cannabis business owners are
paying tax rates that are 70% or higher.
That's almost triple, if not more, than the tax rates paid by non-cannabis business owners. So let me take you through an example just to clarify how unfair the system is today:
A typical business and a cannabis business each make $2 million in revenue and have $600,000 in indirect costs. Both deduct $1,100,000 for the cost of goods sold, a direct cost. That leaves each business with a gross profit of $900,000.
A typical business can then deduct the $600,000 in indirect costs. So, a typical business will have $300,000 in net income before taxes, and, after paying a blended tax rate of 35 percent, have $195,000 of cash left.
However, for a cannabis business, that $600,000 deduction is disallowed under 280E. So, although the companies have the same costs, their taxable income is $900,000, giving them a 105 percent effective tax rate. That leaves them with a $324,000 tax liability—$24,000 more than their revenue less direct and indirect costs.
So when a regular business profits $195,000, a cannabis business only profits $24,000. Even when the 280e tax code has a seriously negative impact on the cannabis industry there are ways to lessen the tax burden. It all starts with proper accounting and compliance; that is why we are here. Here are a few things to take into consideration which we also will help you with:
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Also, do not forget to check on the events that I will be attending
OCTOBER 7-8, 2022
Friday & Saturday, 10AM – 5PM Jackson Convention Complex
Oct. 10-12, 2022
New Jersey Convention Center