What is 280e
IRS Tax code section 280e prohibits any tax deductions for anyone or business engaged in the sale of any controlled substance. This section was enacted in 1981 after a convicted cocaine dealer decided to file taxes and deducted ordinary business expenses. The following year congress responded with section 280e.
That said, a 1930s case had established that IRS can only tax income and not gross receipts; gross receipts are whatever you collect from you customer and income is gross receipts minus what it cost you to make the product (or service) you sold to your customer – this is known as cost of goods sold (COGS).
For cannabis growers COGS will include, but not be limited to seeds, soil, nutrients, labor, rent, machinery, etc. For retail companies this could be labor, packaging, transportation, and if you sell merchandise there are ways that you can structure your accounting so that it is like having two separate businesses. Processing companies can add solvents, equipment, and other ingredients used in making their products.
What is cost accounting
Cost accounting is the process of tracking, calculating, and documenting your cost. In the context of 280e, cost accounting is how you track and allocate costs to COGS and inventory so that you can lower your income and get taxed on less. Proper cost accounting is also about being prepared if IRS should ever decide to audit your company.
Most accountants have no idea about 280e
Most accountants and bookkeepers are not familiar with 280e and a few are just beginning to learn about it. MBA Growth Partners is part of a national network of accountants that specializes in assisting cannabusinesses identify and maximize their COGS in order to lower tax burden. We are also meticulous in tracking these expenses should the IRS come knocking.
If you are wondering whether you can increase your bottom line by taking advantage of these accounting best practices, give us a call.
BRAND DEVELOPMENT IS A CRITICAL
FIRST STEP FOR YOUR CANNABIS BUSINESS
Developing your cannabis brand is a key element of a successful plan, and it starts before you win a license. Along with the usual brand identity elements, brand development and marketing strategies must be compliant with the cannabis-specific regulations in your area. A solid brand and marketing strategy is a key component of winning license applications.
Canna Advisors provides two approaches to offering brand development services to our clients, both provided by our team of award-winning designers and brand development experts with knowledge of this complex regulated industry.
We offer stand-alone brand development specific to your own business that includes naming, logo development, branding, and go-to-market strategy plans. Because of the regulatory complexities of the cannabis industry, we also offer brand licensing which provides turnkey branding that includes product formulations and packaging that is compliant and designed to jumpstart your business operations.