Cannabis Companies Can Save Millions With One Tax Code Section

Under OMMCP rules, plant material cannot exceed a THC content of more than 35% and extracts cannot exceed THC content of 70%. State regulators will have to make a decision as to whether they want to increase potency limits for medical marijuana patients (assuming https://www.bookstime.com/ that the Ohio General Assembly will not act to change the limits). Reported revenue for the fourth quarter of 2023 returns has been revised to $273.9 million. This includes $159.4 million attributed to cannabis excise tax and $114.5 million to sales tax.

Cannabis Tax Planning

Despite many states legalizing the drug over the last decade, cannabis has remained a Schedule I drug, alongside heroin and cocaine, at the federal level. The reclassification to Schedule III is, as President Biden stated in his announcement, “monumental” and has major implications for the U.S. cannabis industry. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer.

• An entity taxed as a partnership reflects the tax consequences of the activities within the legal entity on a partnership return.
• This section has also led to a number of court cases where owners sought to demonstrate (with varying degrees of success) that they have separate trades or businesses, splitting plant-touching activities that are subject to Sec. 280E and non-plant-touching activities.
• The Biden administration’s announcement last month that it would move forward with plans to reclassify marijuana from a Schedule I to a Schedule III controlled substance could result in significant tax relief for cannabis businesses.
• You may be on the hook for tax liabilities in each state unless there is a “reciprocal” agreement between those two states that prevents your business from being taxed on both ends.
• To be compliant with IRS regulations, you may not be permitted to recognize the asset all at once.

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Imagine a typical cannabis business spending $1 million annually on advertising from 2020 to 2022. Add to this the other operating expenses such as $500,000 in rent, $200,000 in utilities, and $300,000 in salaries for non-direct labor – all crucial for running a successful business but none deductible under the current cannabis tax medical marijuana accounting framework. This results in a staggering $6 million in non-deductible expenses over three years, a severe financial strain for any business. Some cannabis businesses have managed to separate their non-cannabis business from their cannabis business, allowing non-cannabis related expenses to be deductible under federal tax law.

• They found no statistically significant effects of marijuana legalization on violent or property crime.
• Our next-level accounting and business advisory services help unlock the full potential of those we work with.
• Some cannabis businesses have managed to separate their non-cannabis business from their cannabis business, allowing non-cannabis related expenses to be deductible under federal tax law.
• At The Canna CPAs, we recognize that cost of goods sold (COGS) is a critical aspect of your financial operations.
• But the change could propel cannabis businesses into a new era of profitability and progress, at a moment of financial precarity unseen since residents voted to legalize the plant in Massachusetts.
• Please note that this article is a high-level overview and is not intended to declare the best type of entity structure for a license holding entity.

Specific cannabis tax planning services we offer:

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• By employing industry-specific cannabis accounting strategies, we can help you streamline your operations, reduce tax burdens, and enhance profitability.
• The authors also found a decrease in non-cannabis drug- and alcohol-related crimes near dispensaries.
• The authors found little evidence to support the idea that recreational legalization dramatically increased traffic fatalities.
• Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0.
• They can also assist in navigating the intricacies of filing Form 3115, should a change in accounting methods be warranted.
• The Division of Cannabis Control in the Department of Commerce will begin accepting applications for adult-use businesses and testing licenses within six months (early June) of Issue 2’s effective date.

Knowing ahead of time the method you’ll be using to make your payments is important to ensure you don’t run into any last-minute snags or late payment penalties. Also, be sure to note that the IRS imposes a 10% fee for those who do not use an electronic filing service and instead pay in cash, so you’ll need to take this into account when you make your payment. If you don’t have your own fleet, make sure to schedule an appointment ahead of time with a secure transport service to help you make that delivery.

The Essence of Year-End Tax Planning

Cannabis Accounting Process Structuring