<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=157958514840961&amp;ev=PageView&amp;noscript=1">

Tax Preparation Checklist for Cannabis Operators

You are here: Home / Tax Preparation Checklist for Cannabis Operators
January 31, 2019

Despite the government shutdown, tax season has officially begun. Income tax-filing season opened January 28, 2019. You have until the deadline of April 15 to submit your business tax return (unless you qualify for an extension).

Given that 2018 was the first year for California’s legal cannabis market, it’s important to get your taxes done early and correctly. There is sure to be a lot of scrutiny on operators from both state regulators and the IRS who will be looking for reasons to penalize those who are not compliant.

If this year’s case of Harborside vs. the IRS is any indication, the tax authorities are showing no mercy in prosecuting negligent or noncompliant cannabis operators.

General Information

Here’s a general list of some information you should have at hand to help you fill out your tax return.

Income

  • Gross receipts

  • Returns and allowances

  • Business checking/savings account interest (1099-INT or statement)

  • Other income

Cost of Goods Sold

  • Review this blog post to see what you can take under COGS deductions. The 280e regulation prevents cannabis operators from taking many of the typical deductions.

Expenses

  • Advertising

  • Bank charges & finance fees  

  • Commissions / fees  

  • Contract labor: Forms 1099-MISC and 1096  

  • Computer & internet expenses  

  • Health insurance: including premiums paid to cover the sole-proprietor and family and premiums paid on behalf of partners and S corporation shareholders  

  • Insurance  

  • Interest expense: including mortgage interest on building owned by business or business loan interest  

  • Meals & Entertainment

  • Office supplies: Pens, paper, staples and other consumables  

  • Mortgage interest or rent paid

  • Homeowner’s or renters insurance

  • Utilities

  • Rent expense: office space rent, business use vehicle lease expense, or other equipment lease

  • Repairs / maintenance  

  • Supplies  

  • Taxes / licenses  

  • Transportation and travel expenses

  • Wages paid to employees: Form W-2 and W-3

  • Federal and state payroll returns (Form 940, Form 941, etc.)

  • Employee benefit expenses  

  • Other business related expenses


Please note that many of the expenses listed above may not be deducted because of tax code 280E. Its important to speak with a CPA who is well-versed in cannabis regulations to ensure you’re doing everything possible to reduce your tax burden.

Federal Taxes

Though cannabis is technically still a Schedule I drug, cannabis operators are still responsible for filing a tax return with the IRS.

The type of return you file will depend on your business entity – the way you’re structured. For example, a corporation would file a Form 100, California Corporation Franchise Tax or Income Tax Return. Here are some other common business structures:

For a full list of possible forms you may need to send to the IRS, click this link.

The main difference in filing your taxes as a cannabis operator (versus a regular small business) will be in the deductions, credits and records you’ll be asked to submit at the time of your filling. Remember, the 280E dictates what you can and can’t take as a deduction. We suggest working with a CPA firm that has cannabis industry experience to make sure you’re completing the right forms and taking the proper deductions.

State Taxes

State taxes vary, of course, depending on where you are. To find the cannabis tax rates in your state, check this helpful guide.

City & Local Taxes

Cities and counties may impose additional taxes to produce revenue for their community, and fluctuating tax rates depend on where your cannabis company operates and is located. To find your local tax regulations, contact your municipality.

To get help on your 2018 taxes from a cannabis specific CPA, click the"Get Started" button below.

Get Started

Filed Under: Compliance, Taxes