With tax season looming, most business owners are in the middle of preparing. For cannabis businesses, in particular, tax season can feel like a minefield. Different states have different legal requirements when it comes to tax return prep and filing. It can get quite complicated depending on whether you are a manufacturer, distributor, retailer or cultivator. As you get your records in order, here are some tips to help this–and future–tax seasons go more smoothly. If you need extra support, get in touch, we have a network of CPA firms for cannabis businesses that are specific to your state.
Choose your CPA Firm wisely
The fact that cannabis businesses are often the target for IRS audits a common source of stress in the cannabis industry. To reduce the risk of tax-related problems, it’s critical to choose an accountant who’s well versed in the tax codes and legal requirements that apply to your type of company and your state. Very few accounting firms have the knowledge required to navigate this highly technical area of cannabis tax law. CUE can connect you with accounting services that will help you keep more of your cash while remaining in full compliance with state and federal tax regulations.
Get Your Records in Order
Most of us discover at least one flaw in our recordkeeping when compiling our taxes. Figure out if you need a new filing cabinet, a better online bookkeeping software, or just some clearly written instructions so that multiple people in your company understand where the tax documents are and how they are organized. Making those changes now, when the annoyances of sloppy records are in everyone’s minds, will make them stick much better. It might take a bit of extra time this tax season, but putting an organizational process in place future tax seasons will be easier.
Make sure the company and employee information is correct
Hopefully, you have kept good records of your company and employee information. Audit the employee data to make sure you aren’t missing any information. Avoid any errors by contacting employees to review their data with sufficient time ahead of your tax submission. Report any employees who are on tax-exempt visas such as A-visas or D-visas. Also, report all payments to contractors and vendors that exceed $600.
Know your Tax Section 280E
While state-legal cannabis businesses are growing, there are still many concerns for cannabis professionals when it comes to accounting. As a cannabis business owner, you have already considered how to get the most deductions out of Section 280E. Federal regulations like section 280E prevent current legal cannabis businesses from taking full advantage of small business tax deductions. This regulation does not apply to the Cost of Goods Sold, therefore growers and farmers will be allowed to deduct a good portion of their expenses as Cost of Goods Sold. This includes costs incident and necessary to production, including direct material costs, direct labor costs, utilities, maintenance, rent, taxes essential in production, depreciation, factory administrative costs, employee benefits, and insurance.
As tax deadlines for this year are coming up, now is a great time to start thinking about the tax season next year. Here are a few useful tips of things you can do both for this tax season and next that will make your filling easier.
Print Estimated Tax Vouchers and Prep Payments for Easy Sending
For cannabis businesses who will have estimated tax payments, it can be easy to let those deadlines sneak up on you. Figure out your deadlines now and prepare the vouchers, a check, and the payment envelope. Get them in your 2020/ 2021 calender. Yes, this may feel silly, but when the deadline looms this will help you feel more prepared for the tax season. You’ll be able to check your account to make sure the money is in the right spot, and then send off the check, no hassle or stamp-searching.
Track All Expenses in a Central Place
One way that cannabis businesses sometimes cheat themselves is by not documenting the many expenses they need to do business and thus paying higher taxes than they need to. Create a system by which many of the people involved in your small business can do their part with things to prepare for tax season; if they all know how to record expenses in a centralized database or spreadsheet, they are much more likely to help you keep your tax burden as low as possible.