Cannabis businesses don’t have the luxury of deducting the same business expenses non-cannabis businesses do. Since the industry is still under scrutiny from the federal government, we must be careful that the items we are deducting are truly deductible under IRS guidelines.
Cannabis distributors, retailers, and delivery services may be able to claim deductions for:
- Transportation
- Utilities for designated inventory areas
- The wholesale purchase price of cannabis for resale
These items are considered COGS (cost of goods sold) and are one of the key factors to reducing your taxable income.
The Internal Revenue Code (“IRC”), has very specific provisions about which cost of goods sold (COGS) deductions and expenses may be included. Because of the importance in making sure the items you deduct are indeed deductible, GreenGrowth CPAs will work with you to ensure every item deducted is warranted and within IRS guidelines.
Another potential tax-deductible service is the business of caregiving. If a dispensary sells marijuana and is in the separate business of care-giving, the care-giving expenses are deductible.
Each state has different laws surrounding caregiving services and how much is tax deductible. For example, in a 2007 case, Caregiving Californians Helping to Alleviate Med. Problems, Inc. v. C.I.R., 128 T.C. 173, the Tax Court determined that CHAMP could take business deductions for the patient care portions of the non-profit’s medical marijuana dispensary operations.
The tax court agreed that CHAMP was actually two separate businesses. The ruling found that the CHAMP’s primary business was actually caregiving services, which would permit the deduction of business expenses.
As a result, it is a good idea to add additional services onto your cannabis business so that you can take advantage of as many of these COGS deductions as possible.
This is just one example, but each state has various laws around how to deduct caregiving expenses. GreenGrowth CPAs specializes in maximizing the allowed deduction for caregiving services. We would love to talk more about how we can maximize your refund.