{"id":1048,"date":"2022-01-29T21:36:54","date_gmt":"2022-01-29T21:36:54","guid":{"rendered":"https:\/\/taxreliefprofessional.com\/?p=1048"},"modified":"2023-09-25T20:37:32","modified_gmt":"2023-09-25T20:37:32","slug":"what-marijuana-companies-should-know-about-filing-taxes","status":"publish","type":"post","link":"https:\/\/taxreliefprofessional.com\/filing-taxes\/what-marijuana-companies-should-know-about-filing-taxes","title":{"rendered":"What Marijuana Companies Should Know About Filing Taxes"},"content":{"rendered":"\n

As of 2020, there are 243,700 legal full-time jobs<\/a> available at marijuana companies. Sales projections for 2022 of legal marijuana are $22 billion. The cannabis market is projected to be worth $73.6 billion by 2027.<\/p>\n\n\n\n

When running a lucrative business, questions often arise regarding write-offs<\/a>. Business owners in the cannabis industry need to make sure they remain in compliance with marijuana tax laws regarding deductions.<\/p>\n\n\n\n

Marijuana companies are especially vulnerable to mistakes when processing tax returns. The laws regarding federal taxation of a business for a federally illegal substance combined with levels of taxation among states leads to confusion and errors.<\/p>\n\n\n\n

To run a lucrative business, you need to understand taxes on cannabis and how to file taxes to avoid tax debt. Even an honest mistake impacts your business revenue. Late payments incur a 5% monthly interest charge<\/a> that increases over time to 25%.<\/p>\n\n\n\n

A Catch 22 Operation<\/h2>\n\n\n\n

When you are operating a marijuana business, your situation is unique. There are 36 states plus the District of Columbia where marijuana is legal for medicinal use, recreational use, or both. As the number of marijuana companies increases, tax laws develop and change.<\/p>\n\n\n\n

The business is a catch 22 operation because you are producing and selling a product that is federally illegal. Despite being illegal, the federal government insists you file yearly tax returns and pay taxes on that business. At the same time, you are denied many tax benefits businesses in other industries are able to take.<\/p>\n\n\n\n

The complexities of the tax code are difficult enough without the additional regulations for the cannabis industry. The good news is that just like other businesses you can go onto a payment plan if you cannot pay your taxes in full. The bad news is you are subject to the same penalties as other businesses if errors are found during an income audit.<\/p>\n\n\n\n

IRS Code 280E<\/h2>\n\n\n\n

IRS Code 280E<\/a> prohibits marijuana companies from taking deductions or credits for expenses incurred conducting business that involves the trafficking of Schedule I or Schedule II controlled substances. Marijuana is a Schedule 1 substance.<\/p>\n\n\n\n

The code does allow a business to reduce its gross receipts by the cost of goods sold for determining the gross income of the business. This means you can take deductions for the cost of obtaining and producing marijuana.<\/p>\n\n\n\n

Not allowable are standard deductions for overhead. This includes wages and salaries of employees, advertising expenses, and business travel. The IRS is working to make it easier to understand the laws specific to this industry, which includes:<\/p>\n\n\n\n