Cannabis Accounting and Tax – A Handy Guide

Years ago, marijuana in the United States was considered a controlled substance and the “Devil’s Lettuce” as it was humorously and ironically dubbed was considered every bit as dangerous as other controlled narcotics.

Thankfully, as time has gone by, society has evolved, we’ve come to our senses, we have research and statistics on our sides and now we understand that marijuana is not only far, far, far less risky than initially thought, but it is also incredibly beneficial from a medical and health perspective.

The medicinal cannabis industry has generated more than $52 Billion in sales as of this writing, and it is estimated that by next year, it will have created more than 330,000 new jobs for people in states up and down the country.

Needless to say, because the marijuana industry is so lucrative, more and more people in Los Angeles and other cities want a piece of the action and there are more marijuana dispensaries opening up than ever before. Like any new business however, you need to abide by the law and stay on the IRS’ good side when it comes to your taxes and bookkeeping [CPA, EA].

Here’s a few things you need to know regarding cannabis accounting and tax.

Get a free evaluation today at 1-877-788-2937.

Familiarize Yourself With Section 280E

As a cannabis business owner, one of the first things you need to do before you deal with the IRS and submit your accounting books for the first year, is familiarize yourself with Section 280E.

A large number of businesses, large and small, rely on business expense deductions in order to reduce their profits, and thereby reduce their overall tax liability owed to the IRS on these trading profits. This is perfectly legal and it is a very useful way for businesses to legally reduce their tax liability. As a cannabis business operator in Los Angeles, CA and other cities however, you may not be able to, thanks to Section 280E.

This piece of documentation states that businesses that obtain their profits from the sales of Schedule II or Schedule I drugs are unable to take on these specific business deductions. So basically, you may have to pay taxes on all of your profits.

If you speak to a tax expert however, they can offer workarounds, so get in touch with a cannabis accounting and tax expert [EA, CPA] and let them take care of it for you.

You Must Provide the Necessary Documentation

When you submit your tax return and get your accounting in order for the IRS, you must ensure that you provide them with as much documentation as you can, which is relevant to your business.

The IRS may request receipts, invoices, payroll records, records of taxes paid in previous years, profits and loss statements, and more besides.

Needless to say, you must ensure that you keep any paperwork or documentation which is relevant to your business, somewhere where you can easily find it.

Try to keep up with your expenses for the year as you go, rather than trying to work everything out at once as you frantically try to submit your tax return before the deadline to your EA, or CPA.

Again, you could try to do this yourself and kick yourself in the process for not doing it sooner or for keeping shoddy records, or you could hire our Los Angeles, CA based professional tax & accounting firm and have us take care of everything for you.

Understand State and Local Taxes

Another important consideration when it comes to your business, is state and local taxes.

Your cannabis business will need to pay state and local taxes, though the amount you have to pay to the IRS will of course depend on which state your business happens to be located in. You should also be aware that every municipality will also have its own unique laws for marijuana businesses.

Laws and rules vary greatly from state to state, as some states will allow marijuana businesses to receive full business deductions, yet there are others which will impose what is known as a ‘Stamp Tax’. A Stamp Tax is a tax placed upon the sales of illegal substances.

Get a free evaluation today at 1-877-788-2937.

Get Ready to be Audited

For business owners, the prospect of being audited is never fun. For most, though, providing your company does everything legal and by the book, and keeps the taxman happy, your chances of being audited will be slim.

Nobody is immune from an audit, yet some businesses are higher up the audit food chain, and cannabis businesses are one of them.

The IRS are not dumb, and they know that the marijuana business is largely a cash business, and they want to ensure that they get everything they’re legally entitled to. This is why immaculate record keeping and accounting is so important for a cannabis business.

Due to the nature of your business, you are more likely to be audited than a lot of other businesses, but again, as long as you do everything legally and by the book, and keep the necessary records and paperwork, you will have absolutely nothing to worry about.

If you are audited, you can go ahead and hire our Los Angeles, CA based cannabis accounting and tax expert who can represent you and walk you through every step of the audit and help you prepare.

Familiarize Yourself With Marijuana Laws

The cannabis industry is proving to be very lucrative, and if you know what you’re doing, you could turn it into a very successful business. It is not however, without its risks due to the nature of the business in question.

There are all kinds of rules, regulations, and laws surrounding the marijuana industry in the USA, and it is your responsibility to understand marijuana tax laws both at a federal level, and indeed, for your own specific state as well.

With laws and regulations constantly changing, this can be a real headache which is why cannabis tax and accounting experts are in such high demand and are proving to be so useful.

To help ease the pressure and get your business in order from a tax perspective, it is strongly recommended that you hire a tax professional, EA or CPA and have them handle things for you.

Get a free evaluation today at 1-877-788-2937.

Client Reviews
Mike has given us peace of mind! He helped negotiate down a large balance and get us on a payment plan that we can afford with no worries! The stress of dealing with the IRS is huge and Mike helped us through it all. The peace of mind is invaluable, thank you Mike! April S.
Mike Habib - Thank you for being so professional and honest and taking care of my brothers IRS situation. We are so relieved it is over and the offer in compromise process went just as you said. Mike is very professional and will give you honest answers to the OIC process and you can really trust him. You won't be sorry you chose him! Joe and Deborah V.
Mike is a true professional. He really came thru for me and my business. Dealing with the IRS is very scary. I'm a small business person who works hard and Mike helped me see that they are not that scary after all. He was always there with the answers I needed and was very good about calling me back which I appreciated since your first reaction is to freak out and ask a million questions. He solved a messy case and worked very hard to resolve it. His rates are VERY reasonable for the amount of work he does! I give him my highest recommendation! Marcie R.
Mike was incredibly responsive to my IRS issues. Once I decided to go with him (after interviewing numerous other tax professionals), he got on the phone with the IRS immediately (as in the same day I signed with him) to squash an impending issue. And he worked directly with them to quickly come to a resolution I am very happy with. I'd highly recommend reaching out to Mike to see if he can help you with any IRS issues. I'm very satisfied! Marshall W.
I’ve seen and heard plenty of commercials on TV and radio for businesses offering tax help. I did my research on many of them only to discover numerous complaints and unresolved tax issues. I found Mike Habib through my own online search and contacted him. He was very professional with great communication, always answering my questions and concerns. Mike resolved my complicated tax problem just as he said he would. I would definitely recommend his services to family and friends. Nancy & Sal V.