Seven states have legalized and taxed marijuana. The taxation is imposed on the consumer purchase, and between the cultivator and the distributor. The marijuana business is thriving because many people have realized the many benefits of marijuana. The states taxes marijuana as a percentage of the retail price and they are raising hundreds of millions from the marijuana. However, the medical marijuana which is legal in 32 states is not generating a lot of income.
When passing the section 280e the congress featured that the part could be challenged constitutionally. To address this issues, the congress decided to exclude the cost of good 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 is very careful on the cannabis business and does not allow for the inclusion of the indirect cost. Cannabis business do not use the same accounting system like the one used by other businesses to ensure that the IRS benefits.
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. It is essential to note that many cannabis business owners are working around the section 280e with smart business structuring. Cannabis business are now working in two separate businesses.
The first cannabis business setting is responsible for the production and distribution of the cannabis. This kind of business will file a return while following the directive of the section 280e. The other business will deal with activities that are legal under 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.
You should expect the IRS to examine your taxation system. In the case of tax negligence and non-compliance, you will be prosecuted immediately. An a tax expert who specializes in cannabis planning will be of great benefit. The expert will ensure that you do not make any mistake while you are filing the taxation.
The experts are going to help you determine the best accounting method that you ought to use. Also, they will assist you on rules of marijuana selling. The expert is usually updated with the latest IRS court cases and will prevent you from paying more tax than you should.