Light up and celebrate! Picture this: Your state has just declared that it is prepared to take the plunge and legalise marijuana, adding to the growing number of states that have done so. Whether this is your current reality or something you’re hoping is in the near future, it’s time to get ready for legalization. If you have considered launching a grow operation, opening a dispensary, or developing cannabis-based goods, this is the ideal time to take the plunge.
Starting a business means managing the myriad elements necessary to get your license and begin operating. Setting up shop can take months or even years to complete, from acquiring the premises to developing fantastic partnerships with lawyers, financial advisors, and other professionals.
However, cannabis-based businesses are distinct, particularly in states where legalization is just beginning. You’ll have to consider licensing and reporting issues at all levels, age and medical criteria, and more in addition to the usual checklist for business owners.
With such a daunting list, it all comes down to one thing: how can you get ready now to position yourself (and your fledgling cannabis business) for future success, especially regarding taxes? And even better, how can you position yourself and your company to lead the cannabis industry in your state?
We’ll give you one hint—it begins with a strong collaboration with a cannabis accounting expert.
What Cannapreneurs Need To Know About 280E, Section 471 and Taxes
Just to be clear, cannabis is still federally prohibited and is listed as a Schedule 1 substance—even if it is legal in your state, which means that you’re subject to IRS 280E. So what does 280E mean?
The federal tax statute, IRS Tax Section 280E, prohibits businesses involved in the trafficking of Schedule I or II restricted substances from taking tax deductions or credits.
This makes it more difficult for you to claim business tax deductions, but you do have choices for navigating it, mostly by relying on Section 471.
Another aspect that an accountant with cannabusiness experience may assist you and your business with is 280E compliance. Additionally, they can help you navigate any additional cannabis-specific sales tax and reporting requirements at the federal, state, and local levels.
While there are long-running rumors that the Schedule I designation may be changing at the federal level, cannabis is likely to remain heavily regulated. So planning now to ensure your cannabis business is compliant with IRS section 280E, will ensure that you are in a good position for any new federal reporting requirements.
Your Responsibilities as a Cannapreneur
Maintaining the efficiency of this area of your organization is not solely your accountant’s responsibility. You must oversee daily operations as the company’s owner, including:
- Putting your business structure in order
- Meticulous recordkeeping
- Tracking your expenses and planning appropriately
- The use of time tracking software
- Keeping your business audit-ready
You will thank yourself later for taking each of these actions since they will prevent common headaches.
And finally, keep in mind that cannabis businesses will continue to be bound to strict federal reporting requirements in addition to reporting on a more local level even after federal decriminalization takes place.
Choosing an Accountant or Bookkeeper as the Next Step
The biggest takeaway: Hire competent pros who specialize in the cannabis industry, not just any professionals. As you prepare to launch and grow your business, your lawyer, accounting experts, and security firm will be crucial resources.
At Accounting for Green we provide accounting services to cannabusinesses to help you get the compliance you need with advice you can count on. To find out how we can guide you through the world of cannabis accounting, get in touch with us right away.