3 Tips from Someone With Experience
So far, marijuana is legal and taxed in seven states. The taxation is done on the raw and processed marijuana products. Because of the continuous discovery of the many health benefits of marijuana, the marijuana business is now booming. The marijuana taxation is generating millions of dollars. The medical marijuana which has been legalized in 32 states does not create a lot of revenue.
The congress feared constitutional challenges when it passes section 280e. Consequently, they decided to exclude the cost of sale in the taxation even when the illegal goods were sold. Cost of goods sods should include the cost of the product, expenses incurred in the delivery, and any other direct cost that is incurred. Even though the cost of sale is deductible, the IRS has a narrow definition for the cannabis business. The IRS does not allow for the changes in the taxation so that there is the inclusion of the indirect cost in the calculation of the taxation. Cannabis business do not use the same accounting system like the one used by other businesses to ensure that the IRS benefits.
To ensure that you maximize your tax deduction, ensure you understand how to work around the section 280e. The successful business has come up with smart business structuring. You need to make sure that you are working in two separate business structures.
The first cannabis business setting is responsible for the production and distribution of the cannabis. While filing the taxation, the first business set up will ensure that it follows the IRS and the Section 280e directive regarding the marijuana taxation. The second business handle activities that are legal under the federal law. Managing the second business, selling ancillary product and offering care services are some of the activities that are done by the second business. It is vital to note that the second business will claim all the deductions. When you operate the business as two, you will save taxation compared to when you could have run it as one.
The IRS ensure that it carefully examines the cannabis business on their taxation systems. In the case of tax negligence and non-compliance, you will be prosecuted immediately. It is recommended that you look for a tax expert who specializes in the cannabis to help you in the process. The expert is going to make sure that you do not commit any taxation or accounting mistake.
The experts are going to help you determine the best accounting method that you ought to use. They will also assist you to understand the general rules regarding the sale of the marijuana. The taxation expert is generally updated with everything about the IRS to ensure that you do not pay more tax than you should.
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