There’s no denying that tax time can be stressful. You have so much to do — gather documents, check your books, fill out the correct forms, and so much more. Just thinking about it is enough to give anyone a headache.
For cannabis businesses, in particular, tax time can be even more anxiety-inducing. That’s because you face much more scrutiny than businesses in other industries. On top of that, you have a higher chance of being audited. To (hopefully) make the process less stressful, we’ve compiled this quick guide to filing taxes and included a few helpful tips.
How Do Dispensaries Pay Federal Taxes?: A Quick Guide
Cannabis might still be illegal on the federal level, but that doesn’t exempt dispensaries and other cannabis businesses from filing federal income taxes. Here’s a look at what you need to do:
Get Your Documents in Order
You’ll need to provide several documents, including:
- Business receipts
- Payroll records
- Profit and loss (P&L) statements
- Tax return from the previous year
Calculate Your Business Income
Subtract your business expenses and operating costs from your revenue to calculate your pre-tax income. Keeping up with your books by reconciling them at the end of each month can make this step much easier.
Calculate Your Cost of Goods Sold (COGS)
As a cannabis business, you don’t get the same deductions as other businesses, thanks to IRC 280E. The only one you do get is your cost of goods sold. As your only opportunity to lower your tax obligation, you want to make sure you calculate this figure accurately.
File the Correct Forms
Your business structure will determine the tax forms you file:
- Sole-proprietorship or single-member LLC: Form 1040 with revenue and COGS on a Schedule C
- Multi-member LLCs and partnerships: Form 1065 for reporting revenue and COGS
- S-Corps: Form 1120-S
Tips for Filing Taxes as a Cannabis Business
Now let’s look at a few tax time tips for cannabis businesses:
Know Your State Laws
You’ll also need to file state taxes. Every state’s laws are different, so make sure you understand the ones specific to where you operate.
Maximize Your COGS
As the only deduction you can take, you want to ensure your COGS are accurate. Consider using employee tracking software to keep track of activities that qualify as COGs under 280E.
Work With a Cannabis Tax Professional
You don’t have to manage your taxes alone. Working with an experienced and knowledgeable cannabis tax accountant can help make the process much easier. Some accountants also offer bookkeeping services and help you file quarterly, making the prospect of filing taxes much less daunting.
Prepare for Filing Your Cannabis Business Taxes
Filing taxes for your cannabis business might be more complicated than for other businesses, but it doesn’t have to be an annual headache. Keeping accurate records throughout the year, filing early, and working with an experienced cannabis tax professional can help. With less stress, you can focus more on what matters most — your cannabis business.
Do you need additional funds to run and grow your cannabis business or even cover the cost of your tax obligation? Visit Bespoke Financial to learn more about our financing options and apply today!