This is by far the most common question we receive during consultations. The answer is yes there is a list of potentially deductible items. Cannabis companies claim deductions via Cost Of Goods Sold (COGS). Note that an expenditure may be an expense for one business (such as a vehicle only used to deliver cannabis), but COGS for another business (same car, but this business uses it only to pick up supplies/inventory). For this reason you should not be looking at the list as if these are your deductions, more so a list of possible deductions. As you can see, maximizing COGS can be quite granular and time intensive.
**NOTE - If you are not acquainted with reading Tax or Legal language, the chart may seem daunting. Never fear, the first two columns of items MUST be included in COGS, the third column MAY be included in COGS, and the fourth column must NOT be included in COGS.
Prior to the November 29, 2018 Harborside Health Center v. Commissioner case, there was a LOT of ambiguity in the law and how it would apply to cannabis companies. The aforementioned Ninth District US Tax Court decision eliminates that ambiguity. According to the Service, cannabis retailers must apply code 471-3(b) to allocate costs to inventory.
" In the case of merchandise purchased since the beginning of the taxable year, the invoice price less trade or other discounts, except strictly cash discounts approximating a fair interest rate, which may be deducted or not at the option of the taxpayer, provided a consistent course is followed. To this net invoice price should be added transportation or other necessary charges incurred in acquiring possession of the goods. "
Ah yes, one of the most painful issues faced by the cannabis industry, the lack of banking.
The short answer to your question is that there is no single nationwide bank which is doing business with cannabis. Business will most likely be done with a State chartered credit union or a sympathetic bank branch. There is optimism that banking for cannabis will be the first movement toward legalization that happens soon. But that doesn't help you do business right now does it? So can you get accounts still? Sure!
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Yes. Unfortunately, a lot of people get really impatient and start creating companies at the very end of the year. Avoid this pitfall and only create entities, especially corporations, when the entity is actually needed. If you do create those entities before year-end , just know that you are going to be paying some (albeit minimal) fees for tax services
Absolutely. CPA's are not limited to performing services for businesses in a specific state. We are very well versed in most state tax jurisdictions and ready to help you regardless of location.
This is the mother of loaded questions. Some cannabis companies will benefit from being a Single Member LLC, others as a partnership, S-Corp, or C-Corp. The answer here is quite situational based on your specific business, needs, goals, etc.
The recent tax law changes in 2018 certainly leveled the playing field between S-Corp vs. C-Corp dilemma, but it does still require some consultation. In most cases, we can sort out your entity structuring needs within an hour or so.
The million dollar question. Now we obviously have our own opinions about what makes a good CPA, and lucky for you we wrote it down on our blog. Your tastes in personalities will vary, but our list of "10 questions to ask before hiring a cannabis CPA" should give you a nice platform from which to take your leap of faith! At the end of the day you should be hiring CPA's with high levels of integrity, experience (industry specific and otherwise), carries a strong tax technical background, and is responsive.
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