Home » What is 280e And Why Is It Important For Cannabis Companies?

What is 280e And Why Is It Important For Cannabis Companies?

by bladnews_54

If you don’t know about 280e, and you operate or are contemplating operating, a marijuana company, it’s time to learn more about this section of the IRS code. How it may affect your accounting, taxes, and tax returns. Section 280e in the Internal Revenue Code is a brief section, but it can have a significant influence on the cannabis market.

This is because IRC section 2.2 specifically says that a company that “consists of dealing in controlled substances” cannot be granted any tax credits. While cannabis may be legal in many states and is illegal at all levels of government, it is still illegal to possess or use. It is illegal in many states, but cannabis companies do not get significant tax deductions.

These companies cannot claim federal income tax deductions for their necessary and ordinary business expenses, as they are denied this opportunity. They’re legally licensed in their states as valid businesses, but the federal authorities don’t recognize them.

The 1980s saw the birth of the law that is now known as 280e. It was the result of a court case in which a convicted coca trafficker could not write off his business expenses. The law was not intended to criminalize drug dealers. However, it has now been found to be detrimental to the cannabis industry.

What Is Schedule I Substance?

Schedule I substances refer to cannabis. Federal law forbids the sale of these substances and prohibits them from writing off their business expenses. A Schedule I controlled substance refers to a chemical or other substance that is highly addictive and has no accepted medical use.

This includes heroin and cocaine. It also includes cannabis. Nixon signed the Controlled Substances Act, which was the law that governs these substances in 1970. Now that so many states have legalized marijuana, however, this act is damaging the industry.

How 280e Really Affects Cannabis Companies?

Businesses deduct operating expenses as part of their accounting. This gives the business tax breaks. The federal tax that the business has earned on its income is then charged. Certain deductions may prove to be very significant for companies and could reduce their tax burden significantly.

Since cannabis companies aren’t allowed to deduct operating expenses legally, they will be subject to a higher tax rate than other types. The only allowed deductions are the Cost of Goods Sold. According to the vertical, cannabis businesses could be responsible for tax liabilities up to 70% of income.

Section 280e places greater scrutiny on a number of business expenses common to the cannabis industry. These businesses also cannot deduct the rent fees they pay for the facilities, the payments made to contractors, and the amount spent on repairs or maintenance.

Contact a Security and Protection Professional

Cannabis companies need to hire experts who have a good understanding of 280e. For the best possible compliance between cannabis companies’ accounting and law, they must be managed in a professional manner. There is still hope for these kinds of businesses if they have their taxes handled by competent professionals.

There are legal issues to 280e that can be brought up by a variety of states and marijuana companies. This could allow these companies to get a reprieve beyond being able to deduct their cost of goods. These firms should contact a tax expert to maximize lawful deductions.

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