Year-end tax planning for 2020 is important to protect the wealth you generate from your cannabis business.
There are many different tax strategies that you can use and it is important to work with a competent cannabis CPA who understands the cannabis industry and its tax limitations.
If you need help with your end of year tax planning, then please reach out to us at: https://greengrowthcpas.com/get-started/ or call 800-674-9050.
In this episode, we cover:
- What is year-end tax planning?
- Benefits of year-end tax planning
- Tax planning considerations for cannabis businesses
- Expenses to accelerate
- Business Tax Savings Opportunities
- Personal Tax Savings Opportunities
Tax Planning Transcript
It’s very easy to make money in the cannabis industry, but it’s hard to keep that money because of taxes and the government doesn’t need any more of your money. They’re raising record tax revenue year after year after year. So don’t give them any more money than you have to, and no individual or business should have to pay any more taxes than are legally obligated to. So in this video, we’re going to help you to better understand what your end tax planning is and how it can benefit you as a cannabis business. Now, if you need help, or if you have questions about annual tax planning, that please reach out to us via our website at GreenGrowthCPAs.com or give us a call at (800) 674-9050. Let’s hop right into the presentation.
So again, our topic is year-end, tax planning for cannabis businesses. And this presentation is brought to you by green growth CPAs. Now, before we get started, I need to let you know that the information contained in this presentation is meant for guidance purposes only, and not as professional legal or tax advice and further, it does not give any personalized legal tax investment or any business advice in general. So with that out of the way, let’s review what we’re going to cover in this video. So first we’re going to talk about what is year-end tax planning. Then we’re going to talk about why we implement these strategies. Then we’ll talk about considerations for cannabis businesses. When tax planning, we’ll talk about expense, acceleration, business tax opportunities, personal tax opportunities. And finally, what it’s like working with GreenGrowth CPAs on your year-end tax planning.
So let’s hop in first. It’s very important to understand what tax planning actually is. And at its core tax planning is the analysis of your finances from a tax perspective, with the purpose of ensuring maximum tax efficiency. Now some common considerations of tax planning include timing of your income, the size of your income, timing out your purchases and planning your expenditures. Now you may be asking, well, why do we even do tax planning? Well, most importantly, it helps you to potentially reduce your taxable income by delaying certain revenues or increasing spending of money in the current tax year to offset some revenues, essentially pay less taxes or better said, don’t pay more tax and you’re legally obligated to, and you may be asking, why am I calling it year-end tax planning? Yes, there are tax planning to do ahead of time. But when you look at the end of the year, it’s pretty important and it needs to happen soon because when the tax year closes on December 31st, that is it.
Your cannabis books are closed and can no longer be impacted by subsequent spending or increasing your revenue. So if an expense or revenue is transacted by December 31st, then it doesn’t get included in your 2020 accounting. And thus it will not impact your 2020 tax filings. So understand that time is of the essence. So let’s now talk about disclaimers for cannabis businesses now. Yes, we all know IRC 280E is there, it kind of ties the hands of cannabis business operators. So what does that mean for year-end tax planning? Well, first as you know, for cannabis businesses, most expenses are not deductible. And as you may also still know only items that fall into cost of goods sold are actually going to be deducted. And this varies by your cannabis vertical. Typically dispensary’s are the hardest hit when dealing with IRC 280E and they are limited as to what expenses and really limited actually in what expenses actually can be pushed into cogs and cannabis manufacturers and cannabis cultivators usually have the easiest time creating a reasonable methodology for including certain expenses into cost of goods sold.
Second, if your cannabis entity is in a loss position for 2020, or any other tax year that you’re doing tax planning for, then accelerating your expenses would not be very beneficial. Pretty much. Having more of a loss is not really going to help you much. And third due to the current election and different tax laws, there is a potential for tax rates being higher in 2021. And with that accelerating your expenses in 2020 may not be as beneficial as waiting, but understand. This is something to consider in that no one on the entire planet knows what will happen with higher or lower tax rates in the coming years. But it’s just worth noting before we proceed with this presentation.
Okay? So you’re in tax planning. One of the most common tactics is to increase your spending in the current tax year. Now you may be asking, well, what are those expenses? So let’s go ahead and jump in and learn what those are right here.
So expenses to consider accelerating in this current tax year. The first one is consider buying large capital items, things like vehicles, machinery, or other equipment. The second one is consider prepaying your January rent in December. If that rent is deductible for your business, such as cultivators and potentially manufacturers, third, you can pay up your direct labor costs, things like salaries, vacation, pay, fringe benefits, such as life health or dental insurance. Number four, you can also pay up your utilities related to your cannabis business. If that’s deductible for your cannabis business, things like your utility bill for your lights, that can be deducted as a cannabis cultivator. Next, you can increase spending a materials and supplies that are typically not subject to 280E such as prepaying vendors for product, for soil, for nutrients, things like that. The 61, you can go ahead and get some of your repairs done. If that’s deductible for your business, number seven, you can prepay your payroll taxes on labor, directly involved with your cannabis business. Number eight, you can prepay legal and professional services for your business, as well as lastly, number nine, here, you should consider depleting your cannabis business inventory by year-end to potentially apply that directly to your cost of goods sold.
So now that you understand some of the expenses that you can increase your spending on, you may be asking, well, how much more do I spend? Am I even doing this right? And you may feel even a little bit lost and that’s okay. GreenGrowth CPAs offers a year-end tax planning service that can walk you through each step of this process. So that’s what we’re going to explore right now. First, we’re going to talk about some of the detailed in nuance opportunities that we can help you explore as an individual and as a business. And then from there, we’re going to talk more about what this engagement looks like and what the process and next steps are. So let’s hop right into that now.
So again, when you work with us on year-end tax planning, these are going to be some of the opportunities that we will evaluate for you. And I will start again with the business opportunities and then your personal return opportunities. So first for your cannabis business, you can use current losses for quick refunds. Now the cares act resurrected a provision, allowing businesses to use current losses against past income for immediate refunds, meaning that net operating losses or NOLs arising in tax years, beginning 2018. And in 2019 and 2020, it can be carried back five years for refunds against your prior taxes. This is a big one that most people do not know about. Secondly, consider the timing of payroll tax deductions. Now the cares act allows employers to actually defer paying their 6.2% share of social security taxes for the rest of 2020. Next. You can also look into taking advantage of the business expensing election, which is a section 179 election for fixed assets placed into service during the year 2020 now for qualified property placed into service during the tax year, beginning in 2020, and immediate expense deduction can be taken.
Now, there is a maximum amount for this that may be expense under code section 179. And that dollar limitation is $1,040,000. Next you can accelerate and pay 2020 employee bonuses. We covered this a little bit already, but generally a cruel base employers want to incur the liability for bonuses and have a deductible for the current year and then pay those bonuses to the employees the following year. So that employees report the income the following year, if they are cash method taxpayers. Now, lastly, you can also look at income and expense timing. Now we’ve covered this a bit already in the presentation, but businesses that have an expected to be in a higher tax bracket, the following year have long deferred income and accelerated their expenses to minimize taxable income. Now, if the Democrats win the house and the Senate tax rates could increase as soon as 2021, in that case, it wouldn’t be very advantageous to accelerate income into 2020 when it would be taxed at lower current rates. Now, again, this is one of those toss ups. We don’t know what the tax rates are going to be, and if they will change during 2021.
So as I said before, there are strategies for your business as well as for your personal income taxes. And since we’ve covered the business ones already, let’s go ahead and jump into the personal strategies to help you with your personal income taxes.
Now, some of these specific personal opportunities are number one you can use above the line, charitable deductions. The cares act authorizes an above the line deduction of up to $300 for monetary contributions made by a non itemiser in 2020. And that raises up to $600 for a married couple. Also for 2020, the cares act raises the deduction limit on monetary contributions to 100% of adjusted gross income. Also known as AGI. Next, you can maximize the 20% deduction for qualified business income or QBI. The tax cuts and jobs act introduced a new provision section one 99, a that allows certain taxpayers to generally deduct 20% of qualified business income on their tax return. Now business income from pass through entities, such as sole proprietorships partnerships, LLCs, and escorts may qualify for this new deduction as well. Next, you can supercharge your investment with opportunity zones. Now we’ve made a whole video on opportunity zone tax credits, but opportunity zones are one of the most powerful incentives ever offered by Congress for investing in specific geographic areas.
Now in certain scenarios, not only can you potentially defer paying tax on gains, invested in opportunity zones until as late as 2026, but you only recognize 90% of the gain. Next, you can make annual exclusion gifts. Now each taxpayer may give up to $15,000 per year to an unlimited number of individuals free of gift tax. Now giving property to your heirs in a lower income tax bracket during that donor’s lifetime is one way to realize income tax savings. And the last personal opportunity that we’ll discuss in this presentation is the higher education expenses and how to take advantage of those. So when appropriate pay qualified expenses for next semester, by the end of this year in generally the cost will be eligible for a credit or deduction in 2020, even if the semester does not begin until 2021.
So now that you understand some of the opportunities and the benefits of year-end tax planning, let’s go ahead and explore what an engagement with GreenGrowth CPAs would look like.
So first we’re going to need to give you an estimate of the engagement now fees for a year-end tax planning can range from $1,500 all the way up to $5,000 for the full engagement and the tax benefits can surely outweigh by a long shot, but the return on investment is something that we can help you get a grip on during your initial call with our team. So make sure you go to the website, fill out the form and schedule a call with our team. So you can get to know how much it’s going to cost and what that potential return on investment is. Now, again, if you’re in a major loss this year or at a low, low income level, this may not be the right strategy for you this year, but you should at least have that conversation. Now you may ask, Hey, why is there such a big range in the price in what makes this so expensive?
Well, it really comes down to how prepared are you with your financial documents. Now, the financial statements we’re going to need to do this engagement is your balance sheet for 2019, as well as a year to date balance sheet for 2020, as well as an income statement for 2019 and year to date for 2020, as well as we’re going to need your prior year tax returns for 2019 and any other tax years that you have available. If you’ve been open for more than just one year. Now, if you worked with us for your 2019 tax prep, then you likely have these documents ready, and your cost is going to be significantly lower than someone say who doesn’t have any of these documents in hand and ready, but it’s not a problem. If you don’t have them, we can help you produce these documents, which Hey, it takes time.
And that adds to the cost. It’s simple as that. It costs more money if you’re not as prepared for the engagement with those financial documents and the price doesn’t necessarily go up because you make more money again, it’s simply comes down to how prepared you are and how organized you are financially in your cannabis business. Now we’ve covered a lot of ground here, so I just want to hit on four key takeaways for year-end tax planning. First year-end tax planning can help you strategically reduce your tax. Bill. Second tax strategies must be implemented before December 31st to have an impact on the current tax year. Third, there are tax saving opportunities at the corporate and personal levels. So don’t overlook things in your cannabis business or your personal income taxes. You need to look at both of them. And lastly, there are limitations for cannabis businesses with taxes due to 280E and experienced tax professionals can help create a thoughtful and reasonable strategy for you and your cannabis business when it pertains to year-end tax planning.
Now, hopefully this presentation has brought you some value and helped you to better understand the importance of year-end tax planning for your cannabis business. Now, if you’d like to move forward and at least chat about your cannabis business with our team, to see if this type of year-end tax planning can be beneficial for you, then please reach out to us. Visit our website at GreenGrowthCPAs.com/plan P L A N GreenGrowthCPAs.com/plan. Fill out that form to the best of your ability. And then someone from our team will reach out and schedule a time to chat with you. And you can also give us a call at (800) 674-9050. Now we’ve helped hundreds of cannabis businesses throughout the entire country and throughout the world with their tax planning and their tax strategies and implementing those tax strategies. So if you’d like to move forward and chat with us in our team about how we can help you with your cannabis business taxes, then please reach out to us via our website at GreenGrowthCPAs.com/plan. Fill out that form and we’ll reach out to you or again, give us a call at (800) 674-9050. Have a great day. And we’ll talk to you soon.