Cannabis businesses can succeed and grow with the right tax help. Tax filing experts are great for getting companies to prepare for tax season, file taxes accurately, and handle any taxation obstacles.
As a business owner, knowing what you need to file and having the right tax documents in order can help you stay clear of any potential fines or fees.
Continue reading on as we discuss how the best cannabis tax filing experts help you grow as a business owner.
Why Tax Expertise Matters For Cannabis Businesses
Getting tax expertise truly matters if you want to navigate the tax regulations in the cannabis industry. There are many tax regulations you should be aware of and filing accurately can ensure you operate legally.
Without having a clear roadmap or knowledge of what you can deduct in taxes and how to file in accordance with your state regulations, your business can be susceptible to negative consequences or worse put you out of business.
The way to find tax expertise is to work with cannabis accountants who know the lay of the industry. Green Space Accounting has extensive experience in accounting and has worked with many businesses on taxes alone, as well as other financial aspects.
They now specialize in working with businesses in the cannabis industry and seek to elevate their business growth to make the industry easier for them to operate.
Demystifying IRC Section 280E For Cannabis Businesses
What is IRC Section 280e? This ruling regulates, how companies like cannabis dispensaries, cannabis cultivations, testing facilities, and others, deduct their taxes. The regulation only allows for the cost of goods sold (COGS) to be deducted rather than traditional expenses.
These cannabis COGS are anything related to the production of the cannabis plant, but not the plant or product itself.
It includes:
1. Cultivators
- Seeds or Clones: The initial cost of the plants.
- Soil, Nutrients, and Fertilizers: Direct inputs needed for plant growth.
- Utilities for Cultivation: Costs for lights, water, and climate control systems directly involved in growing.
- Labor: Wages for employees directly involved in growing, harvesting, drying, and curing cannabis.
- Packaging: Basic packaging costs are necessary to bring the product to a saleable form.
2. Processors
- Raw Material (Cannabis Flower/Trim): Cost of the cannabis product they source for extraction or processing.
- Labor in Processing: Wages for employees directly involved in extracting, refining, or producing concentrates.
- Materials for Extraction: Solvents or other materials directly involved in the extraction process.
- Direct Utilities: Electricity, water, and other utilities used during extraction or processing.
3. Dispensaries and Retailers
- Wholesale Purchases: Cost of purchasing cannabis products from cultivators or processors.
- Direct Labor in Handling Product: Wages for employees involved in receiving, unpacking, and stocking the cannabis products.
These are what you can deduct under the cost of goods sold and anything outside isn’t deductible.
IRC can be navigated if you understand the 280e loophole of how much you can deduct and the taxation regulations. That’s why working with cannabis accountants can get your business the growth needed.
Cash Flow Management: Overcoming Financial Constraints
Along with taxes, you should also get a handle on cash flow management. Cash flow management is the process of tracking expenses and income coming through the business.
When you can track every incoming and outgoing finances, the business can make better financial decisions. This can be hard for a cannabis company working in cash-only environment. Getting a tracking software system can make it easier to trace cash flow, especially if you’re a dispensary.
Here are some other challenges that can hinder cashflow:
- Limited Access To Banking And Financial Services
- High Effective Tax Rates
- Maintaining And Managing Quarterly Tax Payments
- Fees Or Penalties With State And Local Tax Compliance
- Limited Batches Of Inventory And Supply Chain Management
These are some challenges hindering cash flow which you can resolve with the best cannabis tax filing experts.
When Cannabis Businesses Should Consider Hiring A Tax Expert
If you can’t seem to do the taxes yourself or aren’t aware of all the tax benefits your business can receive, then you should consider hiring a tax expert.
Also, cannabis businesses that are just starting out in the industry or expanding their operations, should consider hiring a tax expert.
Key Qualities To Look For In A Cannabis Tax Professional
When looking for a cannabis tax professional, you can seek ones with credible qualities including;
1. In-Depth Knowledge Of IRC Section 280E And 471
- Why It Matters: IRC Section 280E restricts cannabis businesses from deducting ordinary business expenses, which can lead to an inflated tax burden. IRC 471 cannabis cost of goods sold, however, allows some businesses to classify costs as inventory expenses, which can reduce taxable income.
- What to Look For: Look for a tax professional who thoroughly understands these codes and can strategically apply them to maximize allowable deductions through proper classification of COGS (Cost of Goods Sold).
2. Specialized Cannabis Industry Experience
- Why It Matters: The cannabis industry has unique tax rules, and compliance errors can lead to costly penalties. A tax professional with industry-specific experience will be familiar with the unique challenges of cannabis businesses, from cultivators to dispensaries.
- What to Look For: A tax expert with a proven track record of working with clients. They should understand the specific tax structures, challenges, and opportunities in the industry.
3. Understanding Of Federal And State Tax Compliance
- Why It Matters: Cannabis companies operate in a highly regulated environment where federal and state tax compliance is essential. Federal restrictions, varying state tax laws, and excise taxes add complexity that requires a nuanced approach.
- What to Look For: A professional who stays current with both federal and state cannabis tax regulations, especially if your business operates across multiple states with differing rules. They should also be capable of handling multi-jurisdictional tax planning.
4. Cash Flow Management Expertise
- Why It Matters: With high effective tax rates, cannabis businesses often face cash flow issues. Managing cash flow efficiently is vital to ensure that tax liabilities are met and day-to-day operations are maintained.
- What to Look For: A tax professional who can provide cash flow projections and budgeting strategies specifically tailored for cannabis businesses, helping you manage tax payments, inventory costs, and unexpected expenses.
5. Experience With Cost Of Goods Sold (Cogs) Optimization
- Why It Matters: COGS is one of the only areas where cannabis businesses can deduct expenses under 280E. Properly managing COGS helps lower taxable income.
- What to Look For: A professional adept at maximizing allowable COGS deductions. This includes understanding which direct costs can be allocated to inventory and how to strategically track and report them.
6. Proficiency In Record-Keeping And Audit Readiness
- Why It Matters: Cannabis businesses are more likely to face audits due to federal scrutiny. Accurate record-keeping can protect you during an audit and ensure compliance with tax authorities.
- What to Look For: Look for someone who emphasizes robust record-keeping and has experience preparing cannabis companies for audits. They should be able to guide you in setting up processes for documenting transactions, expenses, and inventory.
How Working With A Cannabis Tax Expert Solves Problems And Adds Value
Working with the best cannabis tax filing experts can make it easier to maneuver through tax regulations and file properly. They handle any tax problem your business has and can allow you to work on the business. Work with Green Space Accounting today to explore your needs.
Our accounting company has worked with several companies in helping them file taxes, bookkeeping, and financial planning. Simply, book a call 1 on 1 with us and we can help you get started.
