On: February 21, 2020
Just like everyday people, businesses are subject to income taxes, even cannabis businesses. While the status of cannabis being illegal at the federal level may cause some hiccups if you are not prepared, being up to date on recent laws concerning taxes is crucial for a business. To make sure you get the most out of your cannabis business income tax and staying out of trouble with the government, here are some helpful tips. Determine your type of business Whether you are a personal business or a major corporation, you have to pay taxes, but which ones depends on your status. While the majority of business types go through the same forms and requirements, some cannabis businesses are subject to specific laws. In California, non-profit cannabis businesses are not eligible for the standard non-profit tax regulations, with cannabis being illegal at the federal level. When it comes to federal tax credits, this may affect any cannabis business income tax by limiting or prohibiting the type of credit a business can take. Different business types have specific tax requirements. The business type (entity type) you choose impacts the types of deductions and credits you can take. To find this out, you can visit the state tax board for more information. Credits and deductions The majority of business types will be able to deduct specific costs from their overall tax total. While it depends on the type of business, the most common deduction that businesses will use is the cost of goods sold. You may not deduct other business expenses, such as rent and wages. When it comes to tax credits, which are incentives to take off from the tax total, cannabis businesses are subject to most of the state credits allowed in California. Some of them may include where you bring or grow your business in California, if you hire employees in certain areas, produce a movie or television show, or do qualified research in the state. If a credit is partially or wholly federally funded, there may be limitations due to cannabis’ status as an illegal drug at the federal level. California does not allow Cannabis as a medical expense deduction. How do I file my cannabis business income tax? First, you’ll find the tax forms required for your business type, whether it be through the California Franchise Tax Board or the IRS. You must keep accurate and complete records to support your income and deductions for your income tax returns. This includes sales and purchase records, receipts, invoices, and other items related to your income and expense transactions. This is important to make sure that you don’t get into any trouble by misfiling or misplacing any important tax information that you may need to operate your business. Generally, it is not allowed to pay in cash, so you will make electronic payments to the California Franchise Tax Board during the required time period. However, exemptions may be made under certain circumstances and hardships that people can request with the state government. And always make sure to call Leading Tax Group and don’t attempt to do it yourself.
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