24 Aug Corporate Returns (Form 1120) are due March 15th. Remind your accountant to use these tax savings for your cannabis business
Corporate returns are due March 15th (extensions are available). Any tax planning you were hoping to accomplish during the year is now pretty much evaporated, but there are some last minute things you need to do to insure the maximum deductions for your cannabis business.
1. If you own a dispensary, classify your employees correctly. Do your dispensary agents (bud tenders) do any sort of quality control, i.e., look over packages for tears or improper labeling? Tell your accountant to capitalize the cost of quality control using IRS 471.
2. Start paying for payroll savings. Cannabis businesses generally don’t take the time to do proper cost accounting. If you have a dispensary agent working an 8 hour shift, part of the pay should be for retail activity (not deductible) but part of the day should be spent on patient education, quality control (i.e. reviewing inventory for expiration dates, proper labeling, proper weight per the package, etc.) which is capitalizable. If a bud tender makes $15 per hour, then someone who does quality control should be worth $30-45 per hour. Make sure your employees have time sheets that can provide sufficient time and project detail to satisfy the IRS’s requirements for record keeping. Your average dispensary agent isn’t spending all day selling – they have other tasks that can be capitalized and reduce your tax bite. You should be paying your employees a blended rate that allows you to increase your cost of goods sold, thereby reducing the tax bite.
3. Does your retail facility have a place to store the cannabis inventory? Storage for cannabis is a Section 471 indirect cost that can be capitalized. So, if you have a room where it is stored, or even just a safe on the floor, measure it, and capitalize the amount of space with a proportional part of the utilities, lease costs, etc.
4. How did the cannabis get to your facility? Remember, delivery is also a Section 471 expense that can be capitalized.
This is the first post in a series for saving tax dollars both coming up to this year’s tax deadline and then planning for next year.