If you don’t have clients in the cannabis industry, you likely will in the future. Cannabis businesses are continuing to grow quickly, with many states now legalizing either medical or recreational use, or both. That being said, there are different reporting requirements depending on whether you’re filing a state or federal return.
Below, you’ll find a few of the top questions from the webinar and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: Are cannabis businesses allowed to deduct depreciation on depreciable property, such as buildings, equipment and vehicles?
A: It depends on whether the building, equipment or vehicle use was incident to the production of the product and depreciation is properly included in the cost of goods sold (COGS). If it was, then yes; if not, then no.
Q: Do all cannabis businesses have to file Schedule C, or can they elect C or S corporation status or a partnership, if appropriate?
A: Taxpayers can elect a C or S corporation entity structure, or a partnership if appropriate. The point is that the accounting concepts stay the same.
Q: Does selling CBD or Delta 8 products at a retail level subject the taxpayer to the §280E restrictions?
A: No. CBD and Delta 8 are legal products and would not be subject to the §280E restrictions.
Q: For illegal activities such as cannabis, which expenses are deductible?
A: Only costs properly allocable to COGS are deductible for illegal activities.
To learn more about tax reporting for cannabis businesses, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to join our completely free 30-day trial, visit natptax.com/explore.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.