HOORAY, your state just announced it’s ready to take the leap and join the growing list of states who have legalized cannabis! Now is the perfect opportunity for someone like yourself, who has toyed with the idea of opening a dispensary, starting a grow operation, or creating cannabis-based products, to make their dream a reality.
If you’ve opened a business before, you know there are a lot of moving parts in the background that get a company up and running. From securing the physical space to establishing great partnerships with lawyers, financial advisors, and the like, setting up shop can take months or even years to execute.
But canna-business is unique in its own right, especially for a state in the early stages of legalization. On top of the normal “to-do” checklist for business owners, you’ll have to worry about special licensing and reporting considerations at all levels, age and medical requirements, and more.
With an overwhelming list of items to coordinate, it all boils down to one question: how can you prepare now to set yourself (and your dispensary) up for future success, especially when it comes to taxes? And, even better, how can you set yourself and your business up to be at the forefront of your state’s cannabis industry?
We’ll give you one hint — it starts with a solid partnership with a cannabis accounting pro.
Tax Considerations & What the Heck is 280E and Sec 471?
Let’s get one thing straight: even if cannabis is legal in your state, it is still federally illegal and is classified as a Schedule 1 substance. As with any Schedule 1 substance, cannabis is subject to IRS 280E. (Grab our guide to 280E compliance here.)
IRS Tax Section 280E is the federal tax code that states that any business engaged in the trafficking of a Schedule I or II controlled substance is barred from taking tax deductions or credits.
This limits and complicates your business tax deductions, however, you do have options for sorting through it, mainly by leveraging Sec 471.
280E compliance is just another piece of the puzzle that a specific cannabis accountant can help you and your organization navigate.
Along with 280E compliance, your dispensary is also subject to additional cannabis-specific taxes at the federal, state, and local levels.
A seasoned canna-business accountant can help maximize your deductions and minimize overpaying each quarter and year.
So, What Can I Do?
It is not just your accountant’s job to keep this part of your business running smoothly. As the business owner, you must take charge of the day-to-day operations including:
- Organizing your business structure
- Keeping accurate records
- Knowing your expenses and planning accordingly
- Using time tracking software
- Being ready for audits
Following each of these steps will avoid common headaches, and you will be thanking yourself in the future.
And one last thing to note: even when federal decriminalization happens, cannabis businesses will still be subject to stringent reporting federally as well as on a more local level.
Taking the Next Step: Selecting an Accountant or Bookkeeper
If you take anything away from this post, it should be this: hire good professionals. And not just any professionals, but ones who specialize in the cannabis industry. Your lawyer, your accounting professionals, and your security company will be indispensable as you plan, open, and continue to cultivate your business.
At Automated Accounting Services, we offer specialized cannabis accounting services to achieve the compliance you need with the guidance you can trust. Contact us today to learn how we can help you navigate the world of cannabis accounting.