A Look at the Tax Implications of Rescheduling Cannabis

Almost every state, besides Alaska and Maine, have implemented some form of expungement or record sealing for past marijuana offenders, with 16 states providing for some form automatic record relief for a marijuana-related offense. Additionally, some states have set aside licenses for social equity applicants and established funds to help communities negatively impacted. 18 states have established funds to assist these communities either through reduced licensing fees, loan programs, business assistance, or programs to aid youth development and violence prevention. The licensing fees assessed by states for adult-use businesses vary widely from state to state and license to license. In some states, such as Alaska, fees can be as low as $1,000 while other states, such as New York, can assign fees as high as $200,000.

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Cash accounting creates real-time representation of cash flow to give businesses a clearer picture of their financial position. In the event of an audit (and these are increasing in the cannabis industry), having a cannabis tax professional on your side provides a level of confidence and expertise. They can help you prepare for the audit, organize documentation, and communicate with tax authorities on your behalf. The Bonadio Group is a team of innovative industry leaders passionate about providing clients with tax and consulting solutions. We help businesses make informed decisions and uncover hidden opportunities in the market despite obstacles. Our innovative approach and industry expertise have helped countless companies achieve lasting value.

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I also want to point out that there is no difference in paying income taxes or employment taxes. You still must file your income taxes and you still have to file your employment taxes, and if it’s a cash-intensive business, you still have to make arrangements to pay your tax obligations. Along with regular sales taxes – which in some locations approach 12% – people purchasing marijuana for recreational use also https://www.bookstime.com/ pay a special 6% state tax and a local tax of 3% if approved by voters. Whether marijuana legalization is linked to an increase or decrease in crime is of great interest to policymakers and researchers. Unfortunately, this question is also very difficult to study due to data limitations that exist in our criminal justice system, the relative recency of legalization and the number of confounding factors present.

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AAFCPAs assumes no obligation to inform the reader of changes or other factors that could affect the information contained herein. These can include accelerated depreciation on capital expenditures or pre-paying deductible expenses in December. I understand this nuance can be a challenge for some business owners, and I also realize small businesses don’t always have a lot of resources available to them.

• Our nationally recognized cannabis accounting and consulting team has supported dozens of large cannabis companies with a full range of services.
• Licenses are then required to be allocated within nine months (early September) following Issue 2’s enactment, although the Department of Commerce could act in a speedier fashion.
• The site includes information on a number of relevant topics such as Internal Revenue Code (IRC) section 280E guidance, reporting taxes, making large payments with cash and more.
• Last year, Green Thumb paid over $118 million in taxes on an income of $156 million, a 76% tax rate.
• Therefore whatever entity structure is instituted, the best approach is one that will likely last into the foreseeable future.
• Such changes are subject to IRS approval and can be complex, requiring careful planning and documentation.

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Cannabis/marijuana business owners also need to understand that all cash-intensive businesses can be, and are, audited. I recommend business owners familiarize themselves with all the resources available on IRS.gov/marijuana. With the potential sunset of the Tax Cuts and Jobs Act forthcoming at the end of 2025, much of the focus has been on the use of one’s exemption amounts before the drop. However, for those of whom that are not currently a threat to medical marijuana accounting having a net worth over the current $13.61M exemption or even the reduced post TCJA exemption amounts, there may still be reasons to explore gifting assets during life rather than post-mortem. The good news is that the Internal Revenue Code provides methods for those seeking to transfer wealth to their loved ones while minimizing tax liabilities through the Federal annual gift tax exclusion found under section 2503(b) of the Internal Revenue Code.

• In light of the complexities and ever-changing regulatory environment in the cannabis industry, professional guidance becomes indispensable.
• Additionally, Division of Cannabis Control shall issue up to 40 Level III adult use cultivator licenses and 50 additional adult use dispensary licenses with preference provided to applicants who have been certified as cannabis social equity and jobs program participants.
• Either a single member LLC or a multiple member LLC may elect to treat the LLC as a C-corporation or an S-corporation for tax purposes.
• A few years ago, Payton Shubrick left her job in financial services to break into the cannabis industry.
• Not only does it reduce the taxable income each year, but it also provides a more accurate reflection of the business’s financial health.
• While a 2017 study by Maclean et al. found an increase in disability claim applications and longer disability periods after recreational marijuana legalization, another study from 2021 by Abouk et al. showed reductions in workers’ compensation claims and benefits.

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How much will the state tax marijuana?

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