The cannabis industry is certainly booming. More and more states are steadily modifying their laws on cannabis distribution, production, and use. However, the federal government still classifies cannabis as an illegal substance, therefore business have to jump through hoops to file their taxes.
Cannabis businesses are at a major disadvantage financially. The IRS won’t allow business deductions because the IRC Section 280E denies deductions for businesses remotely resembling distributing controlled substances. Even on a state level, cannabis businesses would also not be allowed to make these deductions under state income tax laws if they strictly adhere to IRC Section 280E.
Further, cannabis businesses are often required to pay other types of taxes that many other businesses might not, such as excise tax. In Colorado, a 15 percent excise tax is imposed on the first sale of cannabis from a cultivation center to a retail store. In addition, California also imposes a 15 percent excise tax on purchases of cannabis and related products.
But as the cannabis industry continues to expand, there’s little doubt that the government will want to capitalize in the form of taxes. But because this particular area of taxes and finances is somewhat new for both state and federal tax agencies, cannabis businesses are somewhat at their mercy. Cannabis businesses should have the freedom to file their taxes just like any other business, and that includes deducting expenses, which would otherwise help them save quite a bit of money
accounting and tax specialist firm to help them navigate the often-complex world of taxes.tains to the cannabis industry.