Marijuana Tax - Year End Steps To Minimize Federal Income Taxes For Marijuana Owners
IRS 280E - What You Need To Know
IRS 280E prevents an owner from taking tax deductions for significant expenses associated with selling marijuana. However, cost of goods sold is allowed as a deduction. You'll need a tax expert to guide you through what is included in cost of goods sold based on the rules the IRS has for the marijuana industry.
Your year end tax strategy should start by reviewing your marijuana facility’s operation and properly allocating deductible and non-deductible expenses. We highly recommend that owners strive to complete the following tasks prior to your year-end.
1. Record all financial information (ie revenue & expenses for the year) into an accounting software package such as Quickbooks or similar accounting software.
2. Prepare financial statements. This should include a P&L and Balance Sheet.
3. Reconcile total annual revenues reported on the financial statements to the 12 month total of sales tax revenue reported to the State of Colorado.
4. Schedule out each employee’s payroll expense and classify the employee by position and duty. Some of the duties the employees perform will be deductible and some won't so be specific.
5. Issue 1099 to all vendors for annual payments over $600 and issue W-2s to all employees. You need to collect W-9 forms from all vendors before 1099 issuance.
6. Obtain copies of your facility’s square footage. Categorize your square footage by usage, i.e. cultivation, processing, administration duties, customer lobby, storage, etc.
7. Prepare a listing of all equipment purchased and improvements during the year.
8. Conduct a detailed physical inventory of all products and cash on hand on the last day of the year.
9. Review each expense line item in your P&L and ensure it is properly supported with receipts, invoices, or a detailed cash journal log.
Feel free to contact Zev Jankovic, CPA to review the financial information above, perform the expense allocations for deductibility, and also prepare your federal and state income tax returns. If you need assistance with any of the items mentioned, please call as soon as possible. Zev's contact info is Zev@Jankovicllc.com or 720-335-5272.