The IRS has clarified guidance for the cannabis industry.
- 280E applies to all cannabis businesses no matter if the business is legal or illicit
- Form 8300 must be filed with every transaction that is $10,000+
- Cannabis businesses should calculate CoGS based on Internal Revenue Code 471
Speak to one of our cannabis tax experts to learn more about how we can help you with your cannabis business taxes.
As the cannabis industry continues to transform from being in the shadows to a viable mainstream business, more and more people are looking for guidance on cannabis business tax filings, cannabis CoGS and many other aspects of financial compliance for cannabis businesses.
On September 11, the IRS released a set of documents that could be helpful for cannabis business owners. There was nothing incredibly earth-shattering about the info, but it did help clear the air on some matters that weren't explicitly stated other places.
Links to New IRS Resources
Prior to this document release, cannabis businesses had little-to-no guidance on how the IRS looks at certain aspects of marijuana-related business. The Inspector General of the Treasury released their report earlier this year which we made a video about some of the high-level findings. (See below)
From what we found so far in the new IRS cannabis documents, you can find some frequently asked questions about cannabis business taxes.
One interesting question was around IRC 280E and deductions for cannabis businesses.
From the new FAQ Page
"Section 280E does not, however, prohibit a participant in the marijuana industry from reducing its gross receipts by its properly calculated cost of goods sold to determine its gross income. The Internal Revenue Service takes the position that section 280E-affected taxpayers must calculate their cost of goods sold pursuant to Internal Revenue Code section 471 and the associated Treasury Regulations."
This is reassuring news and clarifies many remaining questions about section 471. Now understand that it will depend on the cannabis vertical you operate in to determine which indirect costs can be backed into cost of goods sold.
With the Richmond Patient Group case, it was made abundantly clear that dispensaries are not considered producers which means that they cannot claim certain expenses as CoGS that manufacturers or cultivators can.
Some final points from the new cannabis IRS documents include:
- Recordkeeping should be a paramount concern of every cannabis business. It helps you track deductible expenses and gives you the ability to reconstruct financial records in the case of an audit.
- Cash payments of $10,000+ MUST have a form 8300 filed for the related transaction. As you may recall from some of our videos, having a missing Form 8300 is one of the easiest ways for the IRS to kick off an audit. Know that there is no additional tax collected on those larger transactions, this is just a reporting requirement no matter what industry you are in.
- Your taxes can be paid in cash if you are unbanked.
If you need help with getting a cannabis bank account or filing your cannabis business taxes, then please reach out to our team today to learn more.