Cannabis businesses operate under an unfair tax system that creates significant complexity and a heavy burden. Therefore, the best way to beat regulators at their own game is to proactively plan for tax compliance and make the most of the limited deductions and tax-saving opportunities available to you. Below are a handful of money-saving year end tax planning ideas that can help boost your cannabis business’s financial performance.
Review Year-to-Date Net Profits
If you are projecting significant profits for the end of the year, talk to your accountant about 280E deductible purchases you could make between now and December 31st. This will help reduce your net income and therefore reduce the associated tax burden.
Check out our quick guides to 280E Tax Planning:
- Tax Content Hub – 280E
- 280E Deductions for Cannabis Cultivators
- 280E Deductions for Cannabis Retailers and Dispensaries
Review Impact of Business Structure On Taxes
Depending on your company structure and if you operate as a pass-through entity, you may save money on tax payments by changing your filing strategy.
For example, if you have an LLC with significant net profits, that is currently being filed on a Schedule C or 1065, you could consider electing S Corporation. Although this could save some money on the self-employment taxes, be sure to consult your accountant to determine if this is a good strategy for your business.
See our breakdown of the benefits and downsides of the different cannabis entity structures.
Don’t Neglect Your State Cannabis Tax Filing Requirements
Failure to comply with state requirements and due dates could ultimately result in the suspension of your license. Since most deadlines are not in line with federal tax filings, it’s essential to talk with your cannabis accountant and stay updated with your status. In addition, we can provide basic deadline and rate information, or you can check your state’s regulatory website.
State Cannabis Tax Resources:
To see all the cannabis tax details for all 50 states, check out our Cannabis Market Map
Reconcile Your Financials Regularly
To keep in compliance and maximize your ability to increase COGS eligible expenses, it is important to be reconciling and preparing your financials at least quarterly, but monthly is ideal. However, this can be easily done with software like QuickBooks. For a more complicated business with many invoices and expenses, consider hiring someone as this can take valuable time away from working in your business. Moreover, missed tax deductions from inaccurate books increase your taxable income and are essentially like throwing money away.
Check out our tips and best practices for cannabis accounting.
Year End Tax Breaks You May Be Forgetting About
- Are you taking advantage of accelerated depreciation of your capital expenses? Be sure to speak with your accountant to determine eligibility requirements.
- Have you thought about the benefit of prepaying January deductible expenses in December, instead of waiting?
- Consider depleting your inventory by year end to apply towards your COGS deductions.
5 Tax Planning Ideas To-Do Before The End of the Year
- Review your year-to-date net profits to find more savings. If you are projecting significant profits for the end of the year, talk to your accountant about deductible purchases you could make between now and December 31st.
- Issue all 1099’s and W2’s by the end of January to avoid penalties.
- Make sure you have registered for EFTPS, if required. All C corps and any entity that runs payroll should have an EFTPS account set up. This can take over two weeks and will be needed at tax time, so it is crucial to sign up as soon as possible!
- Don’t forget about your 4th quarter estimated tax payment! Reach out to your accountant if you need help calculating what that should be.
- Plan for next year! You can never start planning your accounting strategy too early. Be sure you have the right financial team in place for a successful year to come.
Final Thoughts on Cannabis Year End Tax Planning
Year end can be a stressful time for business owners. Just remember that a little planning and forethought can have a major impact on your tax burden this year and for many years to come. If you have any questions about business structures, tax planning, 280E deductions, or any other topics, please schedule a consultation here or call 1-800-674-9050.