As a business owner, you face many opportunities and challenges. These include finding customers, retaining employees, making a profit, and finding your niche. Reefer CFO Solutions can help with the challenges in cannabis business that you have to deal with.
Here is a list of 6 of the most common challenges in Cannabis Business you might face and tips on how to deal with them.
1. Unique Tax Laws Affecting the Cannabis Industry
Cannabis businesses cannot deduct ordinary business expenses like any other type of business. Since the federal government considers cannabis an illegal substance, the IRS does not allow a variety of business tax deductions, with one exception. Under Section 280E, you can deduct the costs of goods sold related to your cannabis business. Typically, this is more advantageous for growers because many of their expenses can be traced to the costs of goods sold.
To maximize the costs of goods sold, we help you set up your expense accounts and ensure you keep the expenses separate. For example, you can deduct labor related to growing cannabis plants, but you have to keep timekeeping records for any staff members that fulfill other duties at your company. You also need to track utilities and other warehouse expenses explicitly used for growing cannabis separately from utilities for the store.
2. Difficulty in Getting a Bank Account
As if the tax code wasn’t challenging enough, cannabis business owners may find it difficult to open a business bank account. Even though the federal government allows banks to work with cannabis business owners, many major banks still won’t let you open an account. You may have more luck with a local versus a national bank. You can also try local credit unions or search for cannabis-friendly banking institutions in your area.
Without a bank account, cannabis business owners are forced to use cash transactions. This can cause a security risk because it makes you a more susceptible target for thieves, but it can also make you more of an audit target. If you process cash transactions over $10,000, you’ll have to fulfill additional reporting requirements.
3. Setting Up the Right Chart of Accounts
Cannabis business owners need to set up the correct chart of accounts for their company and use accurate bookkeeping practices. Our Reefer CFO CPAs can help you set up your accounts to ensure you follow the correct reporting rules under the current IRS tax code. Accurate financials and the right organization can prevent you from sending red flags to the auditors or streamline the process even if you get audited.
4. The Risk of an IRS Audit
Running a cannabis business increases the risk of IRS audits due to limited tax deductions. We assist with accurate record-keeping.
5. Finding Cannabis-Friendly Merchants
Cannabis-friendly merchants are emerging as the market grows, but finding them difficult. Whether you need help processing payments or running payroll, cannabis business owners may find themselves turned away by traditional merchant accounts. Until federal legislation on cannabis changes, you’ll likely continue facing these difficulties.
6. Finding CPAs with Industry Knowledge
Traditional business owners don’t have to search far to find a knowledgeable CPA. Cannabis businesses are different because they are not legal in every state. As the industry grows and legislation changes, you will probably see more of a selection in CPAs. Reefer CFO has been helping businesses for over 20 years. We specialize in assisting cannabis business owners like you to follow tax laws and avoid penalties and fines.
Reefer CFO Can Help You Overcome These Challenges
At Reefer CFO, we specialize in helping cannabis business owners like you stay ahead of current legislation and take advantage of legal tax deductions. We can help you set up your books, take care of the day-to-day accounting, and handle your tax returns. Most importantly, we’ll make sure you maximize your legal tax deductions while reducing the chances of being audited by the IRS. Call us today to schedule an appointment to discuss your needs.