Three basic truths about IRC Section 280E

Cannabis businesses have little room for error in an unpredictable regulatory environment that is also ripe with opportunities. They must be in good standing with the IRS, including compliance with Internal Revenue Code (IRC) Section 280E, in order to avoid risks and remain sustainable. IRC Section 280E is often referred to as the Polston Tax.

Section 280E exempts cannabis businesses from standard business expense deductions from federal taxes. This exclusion not only limits profits, but it also complicates cannabis companies’ tax strategies. Understanding and managing Section 280E as part of tax planning, on the other hand, is not impossible. Recognizing these three facts is a good place to start.

  1. Section 280E workarounds or loopholes are uncommon

Without deductions and credits, some cannabis businesses could face an effective tax rate of up to 80%. It’s no surprise that business owners have foolishly sought ways to avoid Section 280E. However, too many people have discovered the hard way that aggressive and risky Section 280E strategies do not work.

  1. Thorough accounting is necessary for managing tax liabilities and attracting investment

Cannabis companies that want to improve their tax positions work hard to fully understand the tax laws and improve their inventory accounting and finance operations. They develop consistent methodologies, detailed documentation, and audit-proof reports. In essence, they strictly adhere to current cannabis accounting practices.

  1. Cannabis businesses should brace themselves for IRS scrutiny

Another reason to improve accounting procedures: The IRS has indicated that it will continue to aggressively audit cannabis businesses and penalize violators. The IRS issued a brief FAQ on cannabis taxation in September 2020, reiterating its long-standing position. Section 280E will be strictly enforced as long as marijuana remains a Schedule 1 or 2 substance under the federal Controlled Substances Act.

Reasons to hire a small business tax accountant

You should not overlook the services of an accounting firm as a small business owner. Accountants assist in protecting your company from insolvency, tax evasion, and other related consequences. They also offer legal counsel and consultation on how to run your business more efficiently. Here are five reasons why you should hire a small business accountant right now.

Financial Guidance

A tax accountant can offer you valuable suggestions and advice on how to integrate your personal finances with your business. They will assess your company’s legal status and provide financial advice that is appropriate for your financial situation.

Accounting for Management:

Most accountants offer management accounting services, which aid in increasing your company’s profitability. The professional will track, record, and report your company’s financial status, as well as provide advice on what areas are working and which need to be improved. You will also receive a detailed report on everything from expenditure to income.

Bookkeeping:

Whether you use industry standards or your own bookkeeping methods, the accountant will keep track of everything and keep you from misplacing paperwork or records. They will monitor your accounts and notify you of any losses or opportunities to improve your profitability.

Payroll:

Aside from paying salaries, there are some payroll taxes that can have a negative impact on your company’s income. To avoid taxation issues at the end of the fiscal year, businesses must maintain an effective payroll system or consider using payroll services.

 

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