For cannabis businesses, navigating taxes can be a difficult challenge. There is a federal tax code that governs how cannabis-touching entities are taxed, known as Internal Revenue Code 280E. However, certain states have gone beyond this and allow deductions that are disallowed at the federal level. Read on to find out which states allow these extra tax deductions and what they include.
In some states, businesses may take deductions for ordinary business expenses such as office expenses, interest expenses, business meals, software, telephone, advertising costs, and other selling, general and administrative costs that are disallowed at the federal level.
In addition to allowing deductions for ordinary business expenses not allowed by IRC 280E at the federal level, some of these states also offer additional tax incentives to cannabis businesses. For example, California allows licensed dispensaries to deduct up to $5 million of qualified capital expenditures from their gross income each year; this includes any money spent on building out retail locations or making improvements to existing ones. Oregon also offers an income tax credit for any investments made in the state’s legal marijuana industry during the preceding taxable year; this credit must be applied against taxes due in the same taxable year it was earned in order to receive the benefit.
The following states allow the cannabis business to add back federally disallowed 280E expenses:
- Colorado
- California
- Hawaii
- Louisiana
- Maine
- Michigan
- Minnesota
- Montana
- New Mexico commencing June 29, 2021
- Oregon
- Vermont commencing in 2022
- Missouri commencing in 2022
- New Jersey commencing in 2023
- New York commencing in 2022
Cannabis-touching entities operating in certain US states have access to additional tax deductions and credits not available at the federal level, thanks to more progressive laws regarding marijuana businesses. CEOs of cannabis companies should be sure they understand all of their options when it comes time to file taxes so that they can maximize their deductions and minimize their overall taxes due each year—ideally, they should retain a cannabis CPA firm that is also an expert cannabis tax preparation firm, like The Canna CPAs. Our team of cannabis accountants, cannabis tax preparers, and cannabis CFOs are experts in these matters. Call us now at 833-CPA-CANA or 833-272-2262.
Sandy Suchoff, CPA is the Founder and principal of Lefstein-Suchoff, CPA & Associates, LLC D/B/A The Canna CPAs. Suchoff has been featured and interviewed on MSNBC, FOX News, and Tune In Business Talk Radio as a tax advisor, as well as ONR Oklahoma PBS TV, Chasing News on FOX & WOR, KRQE 13, Cannabis Radio, Purple Haze Radio, and Cannabis Tech & Today as an advisor on cannabis tax and accounting.
