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Accounting, Tax, IRS & Marijuana

6 Common Accounting Problems Marijuana Businesses Face

Medical_Marijuana_Tax_28251526_1_.54638ff8305c6 Problem #1: Not Knowing About the Cannabis Industry, State Laws, and Tax Law
To help ensure your business is running smoothly (and legally), your lawyer and CPA need to be knowledgeable about the marijuana industry. A good legal and finance team should know what entities are permissible or normally used in this industry, and should be familiar with the laws of your particular state. 

At a minimum, a knowledgeable CPA will understand the effect of Internal Revenue Code Section 280E, which concerns the taxation of illegal income (something the marijuana industry should be familiar with due to the plant’s federal illegality), specifically what deductions are allowed. Your CPA should have suggestions on ways to minimize and/or protect you from the risk of major problems caused by IRC Section 280E.

Problem #2: Getting a Bank Account
Despite the federal government giving its blessing to banks working with marijuana businesses, many financial institutions are reluctant to allow legal cannabis businesses to use their services until the federal ban on cannabis is lifted. As a result, many cannabis businesses are forced to keep a lot of cash on hand, making them susceptible to robberies and other safety concerns.

A knowledgeable CPA can suggest some ways for you to successfully obtain a bank account. And a knowledgeable CPA can train you to run your business using only cash and advise you on how to pay your bills and keep accurate records which will help fulfill call of the IRS's requirements for record-keeping.

Problem #3: Being Audited
Being on the receiving end of an IRS income tax audit is not fun, to say the least. Unfortunately, marijuana businesses are especially prone to auditing flags due to the nature of the industry, but don’t start worrying now, a good CPA can help you successfully navigate the IRS audit.

If your CPA is familiar with the cannabis industry, he or she can give advice about potential audits from various taxing authorities. 

Problem #4: Not Using Solid Business Software
You should be using a CPA who understands technology. By working online using cloud-based accounting software, you’re taking extra steps to secure your key financial and business information through virtual backups and HIPPA compliant security.

Your CPA can walk you through various software used in this cannabis industry and help you make a decision on which is best for your business.

Problem #5: Internal Controls to Protect Your Inventory and Assets
Your business has lots of valuable inventory on hand, not to mention lots of cash. These assets need to be protected from fraud, thieves, embezzlement, accidents, and other unpredictable incidents. A CPA can advise your business on best internal control practices in order to safeguard your valuable assets.

Problem #6: Not Having a Solid Network in the Marijuana Industry

CPAs are 'connectors' in the 'connection economy'. Your CPA should have connections in the marijuana industry from dealing with lots of different professionals and marijuana businesses; and should be able to make networking introductions to make sure you meet who you need to meet in order to help your business achieve all of its goals. 

 

It’s critical to invest in a knowledgeable accounting and legal team to help keep your business compliant, legal, organized, and successful. Feel free to contact us if you need a CPA firm specializing the marijuana industry.