High taxes are a feature of the cannabis industry. Federal tax code § 280E, state excise taxes, sales taxes, use taxes, local business license taxes and a cultivation tax all contribute to this situation. Cannabis CPA understands the complex tax environment faced by cannabis farmers and offers guidance and tips for helping them maximize their tax deductions.
Financial Services for Cannabis Farmers
Financial Planning for Farmers of Cannabis
Tax Code § 280E for Cannabis Farmers
The U.S. government classifies cannabis as a Schedule I controlled drug even though recreational or medicinal marijuana is currently legal in dozens of states. Tax code § 280E, which became law in 1982, prohibits “ordinary” business deductions for companies that buy or sell controlled substances, which results in a much higher effective tax rate for businesses in the cannabis industry. However, cannabis companies are allowed to claim expenses associated with the cost of goods sold (COGS).
Tax code 280E applies to cannabis farmers as well as to dispensaries and distributors. But because farmers’ expenses are more closely related to production, their COGS deductions are greater and 280E has less of an impact on their income taxes. And some states allow cannabis companies to deduct standard business deductions on their state income tax forms, further reducing the tax burden for those operating in Colorado and Oregon. Short of relocating, can cannabis farmers do anything else to lessen their tax liability?
Our Cannabis Farmer Services
Cannabis CPA helps our clients:
- Set up a corporate structure that optimizes their tax situation
- Understand what can and cannot be deducted under COGS
- Implement a system to record hours worked directly in production
- Deduct a portion of labor costs not directly involved in production
- Separate direct and indirect expenses for tax purposes
- Protect against audits by creating documentation protocols
- Maintain compliance with all relevant rules and regulations
Why Choose Cannabis CPA for Your Cannabis Business
As you know, your tax situation is complex. The professionals at Cannabis CPA have years of industry-specific experience helping farmers determine which expenses are deductible and helping them file their tax forms — and we want to assist you, too. We not only help you comply with tax regulations and set up your company structure, but we also help you implement accounting, bookkeeping and reporting systems designed to protect you in the event of an audit. Ready to talk?