Marijauna is today legal and taxed in seven states. The taxation is imposed on the consumer purchase, and between the cultivator and the distributor. Because of the continuous discovery of the many health benefits of marijuana, the marijuana business is now booming. The states taxes marijuana as a percentage of the retail price and they are raising hundreds of millions from the marijuana. The medical marijuana which has been legalized in 32 states does not create a lot of revenue.
The congress feared constitutional challenges when it passes section 280e. Consequently, they decided to exclude the cost of sale in the taxation even when the illegal goods were sold. According to the congress, the cost of the good sold are the direct expenses, like the cost of product and shipment expenses which are directly associated with the marijuana that is sold. Even though the cost of sale is deductible, the IRS has a narrow definition for the cannabis business. The IRS does not allow for the changes in the taxation so that there is the inclusion of the indirect cost in the calculation of the taxation. To ensure that the IRS maximumly benefits, it has ensured that the cannabis business does not use the same accounting method as regular businesses.
It is vital to make sure that you are conversant with how you should work around section 280e to make sure that make maximum deductions. The successful business has come up with smart business structuring. You need to make sure that you are working in two separate business structures.
The first cannabis business setting is responsible for the production and distribution of the cannabis. The business will strictly follow the IRS and section 280e directive while filing the tax. The second business handle activities that are legal under the federal law. Managing the second business, selling ancillary product and offering care services are some of the activities that are done by the second business. This second business is going to make sure that it claim all the tax deductions. When you operate the business as two, you will save taxation compared to when you could have run it as one.
The IRS ensure that it carefully examines the cannabis business on their taxation systems. You are going to penalized immediately in the case of negligence or non-compliant with cannabis taxation. It is vital that you consult a tax expert who deals with cannabis. The expert is going to make sure that you do not commit any taxation or accounting mistake.
The marijuana accounting expert will guide you on the best accounting method. They will also assist you to understand the general rules regarding the sale of the marijuana. The taxation expert is generally updated with everything about the IRS to ensure that you do not pay more tax than you should.