At this time, what is the most notable Accounting challenge for cannabis companies?
The biggest challenge is understanding what can and cannot be deducted on a federal tax return - as well as understanding WHEN those deductions can be taken - due to the severe limitations placed on cannabis companies by IRC 280E. Very simply, this code section limits deductions to production-related expenses for cannabis growers and cannabis processors and it limits deductions to acquisition-relted expenses for cannabisretailers.
Every business decision - entity structure, fixed asset purchases, product/service mix in a store - all need to be filtered through the lens of IRC 280E. It can be planned for and managed, but it creates odd twists to most 'normal' financial decisions a business would make. The reason it needs to be understood well is because it can create a very large chasm between book income and taxable income, necessitating careful tax planning and tax saving throughout the year.
The biggest challenge is understanding what can and cannot be deducted on a federal tax return - as well as understanding WHEN those deductions can be taken - due to the severe limitations placed on cannabis companies by IRC 280E. Very simply, this code section limits deductions to production-related expenses for cannabis growers and cannabis processors and it limits deductions to acquisition-relted expenses for cannabisretailers.
Every business decision - entity structure, fixed asset purchases, product/service mix in a store - all need to be filtered through the lens of IRC 280E. It can be planned for and managed, but it creates odd twists to most 'normal' financial decisions a business would make. The reason it needs to be understood well is because it can create a very large chasm between book income and taxable income, necessitating careful tax planning and tax saving throughout the year.