If you’ve opened a marijuana dispensary recently, you’re probably pretty familiar with the financial challenges posed by the current tax laws. In general, except for the cost of goods sold, or “COGs,” Uncle Sam disallows expenses incurred by businesses that traffic in controlled substances. So with traditional accounting methods and business models, you wind up paying taxes on 100% of your income.
But there are some ways to minimize tax liability associated with a marijuana dispensary:
- Analyze your business structure. If you sell items such as marijuana-related paraphernalia and clothing, or if you offer drug counseling or similar services, consider splitting operations into two or more businesses, with one business devoted exclusively to selling marijuana. The remaining businesses can focus on all other activities related to the marijuana industry. Although the marijuana retail business will face substantial taxes, the related businesses can deduct all reasonable and ordinary business expenses.
- Uncle Sam permits more than one business to operate out of a single location. With multi-business ventures, you can deduct a portion of the space lease, utilities, repairs, upgrades, and other related expenses for the businesses that aren’t directly engaged in selling marijuana.
- As for the COGs, which go a long way in reducing the gross income for a marijuana business, be sure you leave a healthy paper trail documenting all expenses associated with getting the raw product to a marketable state. This is particularly important for cultivation centers, which incur expenses for seeds, water, labor, grow lights, and similar necessities.
- Review your workforce. Are there workers who are employed under the marijuana retail business’s EIN when in fact they perform work primarily for the related businesses? Keep the workforce for the marijuana retail business as small as possible.
Finally, give Law Offices of Christy Lee, P.C. a call. We’ll answer your questions about taxes and your business, assess where you could be saving taxes, and help get you on the path to minimizing your taxes so your profits don’t go up in smoke.