Despite legislation allowing the sale, cultivation, production and testing of marijuana products there are federal tax laws that make it essential that companies engaged in these activities work with accountants and tax preparers who have experience and knowledge in their unique regulatory environment. Aldea Tax Services Inc provides the accounting and tax services that you need.
The Legal Marijuana Industry Faces Unique Tax Challenges
Licensed marijuana businesses that dispense or cultivate medical or recreational marijuana, as well as those that produce marijuana-infused products or laboratories that provide quality control testing of legal marijuana, are subject to U.S. Code 280E, which was originally passed into law in 1986. At that time the law targeted “illegal drug traffickers” and it prohibited businesses selling what the Controlled Substances Act had identified as Schedule I and Schedule II substances from using tax deductions from the sale of those products on their income tax return.
Despite its legalization in many states, marijuana is still classified as a Schedule I substance, and the law has not changed. That means that the Internal Revenue Service still considers revenue from the sale of marijuana “ill-gotten proceeds” and will not allow businesses to take tax deductions for many of their legitimate business expenses.
We Understand The Accounting Needs Of The Marijuana Industry
Legal marijuana businesses have challenged the IRS position in two significant cases, but in both the CHAMP and Olive litigation the U.S. Tax Court has continued to maintain 280E’s legality. That means that expenses such as rent, signage, advertising, budtender wages and some improvements cannot be deducted, while costs associated with inventory production for growing, cultivating and producing an extract or infused product can be.
There are other ways that the IRS treats legal marijuana businesses differently than other types of businesses. Where other industries’ taxes are assessed based on net income (sales less the total of production costs less administrative costs minus selling costs,) marijuana businesses’ taxes are assessed based on sales less production costs (gross income).
Strategies To Help Your Business
Whether this is fair or not is not the question. What is important is ensuring that you are working with a tax preparation and accounting service that understands the tax strategy necessary to allocate deductible and non-deductible expenses in a way that is both legal and that minimizes your tax liability. Our approach does that, while at the same time providing the following essential services:
Providing audits of your financial statements and reviewing and compiling accurate statements for investors, owners and financial institutions
Maintain accounting records
Performing forensic accounting examinations when fraud or theft is suspected
Preparation and filing of federal and state income tax
Preparation of financial and accounting policies and procedures
Preparation of internal control evaluations to allow existing businesses to identify vulnerabilities
Preparation of sales and excise tax filings
Preparation of weekly and monthly payroll
Financial consulting services
Recommendations and assistance in implementing legal business structure and formation
For more information on our approach to tax and business services for the cannabis industry, contact us today to set up an appointment.
Our expertise is widespread and we have multiple office locations to make it convenient for you to get help. You can find us at: