24 Aug Last Minute Tips for Tax Savings for Your Dispensary or Cultivation Center
Corporate federal returns are due March 15th, so unless your accountant is filing an extension, you should be busily sorting through records to assemble the data in a format that can be used.
Chances are your return will look similar to last years, along with the same issues about deductions for your cannabis business, but hopefully you have all of your receipts, detailed invoices, and sufficient documentation to with stand any potential audit.
If you own a dispensary, March 15th (the Ides of March – the day Julius Caesar was stabbed to death by the Roman Senate after defying their orders not to cross the Rubycon in Rome) means your corporate return is due. Whether your return is filed or not, TAXES ARE DUE. Even if you have to borrow the money, it’s going to be cheaper than the penalties and interest you may accumulate. Remember -there’s a 20% penalty for filing a return you should have known was inaccurate, and the IRS is merciless in collecting this.
Anyway, here’s some deductions for both dispensary owners, growers, and edibles manufacturers to bring to their accountant’s attention.
Dispensary owners- At this point, you’ve heard enough about IRS 280E and the loss of deductions for “trafficking” in marijuana. So, try these out to increase the cost of goods sold (“COGS”).
a. I have one client, who cleverly offers drug counseling for patients looking for medical marijuana. She offers them a membership in her consultation service, which she charges for. The kicker – if you join her drug counseling practice, you get to go to free weekly seminars, get up to date drug/nutrtional advice, one on one counseling, & DISCOUNTED CANNABIS. This obviously reduces the gross income for the dispensary, but picks up cash for the other business which can deduct expenses. If you’ve done any drug counseling, make sure you deduct the appropriate wages from your payroll and move it to your other company.
b. Since you can’t deduct expenses for retailing cannabis, you essentially have only two places to find tax deductions – creating a higher COGS or having another business in place that is legitimate, maintains a separate set of books, etc. Assuming you are putting this together at the last minute, here are a few tips:
c. The “side” business doesn’t have to be incorporated, and if you do it too close to the tax return due date, it could be evidence of tax fraud. However, if you merely call the business a name and put it on your personal return, you’re okay. So, if you’ve been providing any sort of counseling, caregiving (other then selling cannabis to patients) then it is deductible as a legitimate business expense. Make sure you can document the time and money spent on it.
d. In order to maximize the COGS, are you including every expense in getting the cannabis on your shelves? If possible, transport the cannabis yourself, and add the cost of travel to the COGS. This can include pay for the driver, depreciation for the car, and any other expenses associated with it.
e. If you’re a cultivation or grow operation, make sure you talk to your accountant about research and development credits. They can eliminate up to 10% of your tax liability, and here’s just a few things that qualify:
- Designing new processes in both greenhouse and warehouse operations
- Designing specialized tooling and equipment for harvesting and manufacturing
- Hybridizing during the development of new strains of cannabis
- Improving harvesting techniques to increase yield or production efficiency
- Developing or implementing automated processes
- Developing or implementing new ways to protect crops from disease or insect pests
These are just a few quick ideas to help reduce the tax bite. Stay tuned, I’ll be adding more next week.