As December 31 fades in the rearview mirror and another year appears in the headlights, it’s time to think ahead to 2017 Tax Season. The Tax Man will be here sooner than you think.
While reviewing year-end financials, keep these things in mind:
Count your cash
When thinking of the cannabis industry, one thinks of cash. And lots of it, Benjamins, Grants, Franklins, even Jeffersons. All cold hard cash. All marijuana business is done in cash. Just like the good old hippie days. An all cash transactions can sometimes be hard to track. So as the year is drawing to an end, take the time to accurately record all cash on hand.
On Dec. 31, the last day of the year, be sure to take an accurate count of all cash on hand. Then compare it to your accounting balance. Rectify any difference. You must document your cash count for audit purposes. Review and reconcile any and all bank account statements. Remember any deposit of $10,000 must be reported to the IRS on Form 8300.
Taxes and 280E
Is medical marijuana trafficking
Section 280E of the Internal Revenue Code forbids businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act. It was created by Congress to prevent drug dealers from deducting ordinary business expenses. Section 280E states that no deductions should be allowed on any amount “in carrying on any trade or business if such trade or business consists of trafficking in controlled substances.”
The IRS has subsequently applied Section 280E to state-legal cannabis businesses, since cannabis is still a Schedule I substance.
Cannabusinesses, however, pay taxes on gross income.
Perform a 280E Analysis to determine 280E exposure for 2016. Evaluate inventorial costs, including direct and indirect materials. After performing the 280E Analysis, make sure there is enough cash to pay the IRS.
Expenses likely to be scrutinized:
- Employee salaries
- Utility costs
- Health insurance premiums
- Marketing and advertising costs
- Repairs and maintenance
- Facilities rental fees
- Contractor payments
Want to establish or expand a cannabis cultivation, grow, dispensary, extraction or retail business? Let Pinnacle Consultation help with your business plan, site location, financial projections, operational plans, licensing assistance and state and local compliance visits. Pinnacle Consultation has an experienced and knowledgeable team ready to help with every step of the process. Pinnacle Consultation offers a variety of services to the cannabis industry. Contact Pinnacle Consultation today at 719.330.5301.