Federal Tax Compliance

Discussion in 'Marijuana Business and Industry' started by MicanopyMadness, Oct 21, 2014.

  1. #1 MicanopyMadness, Oct 21, 2014
    Last edited by a moderator: Oct 23, 2014
    One thing I see as a huge problem that no one seems to ever address is; how do we comply with Federal tax law?  For example, as we all know, most of us pay income tax at the local, state and Federal level.  Now that the local and state governments are decriminalizing MMJ we know how to comply - report and pay.  However, at the Federal level, MMJ is still illegal.  Just like the IRS broke the mafia through tax-law, so can they crush any MMJ business-person.  you cannot hide nor pay tax on nor enjoy any tax benefits like deductions on ILLEGAL BEHAVIOR.
    How do the people in Washington, Cali, Colorado comply with Federal tax law?  Do they simply report anyway and the Feds look the other way?  What about deductions for legitimate expenses - do they take a deduction for these or do they pay Federal tax on GROSS RECEIPTS?
    Inquiring minds want to know!

  2. No responses after almost 200 views - hmmm...
    Scary, huh?
  3. You pay taxes like a normal business. However, your subject to IRS tax code 280e.

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  4. Thank you.
    "No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted." -
    So, the businesses that choose to report and pay do so on the GROSS PROCEEDS and not a net after deductions/credits?
    Very interesting.
  5. No. All cultivation/infusion/management expenses are completely deductible. The only part where you have to get creative is on the trafficking. "Trafficking" is the transfer portion of the deal (meds for money). This portion normally takes about 2 minutes to complete. That being said the average patient time is about 10 minutes. So the bud tenders are only trafficking for 20% of the time. So if said bud tender cost you $100 per day. You're able to write off $80 of his/her salary.

    The same goes for square footage in your store. You can write off all your rent except the portion which is used for trafficking (normally the counter). So again, it becomes a % of rent.

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  6. Thank you, very helpful newb.
  7. I know a guy in his 70's who used to be a Regional Commissioner for the IRS and is now a practicing CPA specializing in IRS disputes.  I sent him the information and here's his reply;
    "I reviewed the info provided. I believe the arguments offered have some merit. However, from a practical point of view I believe you have to assume an audit by IRS.  Then attempting to prove the arguments and the allocations will be very difficult if not impossible.  All of that being said, I'm not willing to get involved at any level in the business until the law is changed.  Good luck and have a great weekend."
    As for me I guess I'll take a wait-n-see attitiude.  I just can't lay my head on a choppin' block for money - I don't care how much.  Been there, done that.  Never again.
  8. I recommend talking to an accountant that deals with medical marijuana. I use Hank C. Levy out of Oakland. He represents some big dispensaries like Harborside Health Center, and has taken them through IRS audits.

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  9. Cool, thanks.  Will do.
  10. You should watch 'Lynching Charlie Lynch' on netflix. He went through the same thing.
    begging to pay taxes.
    I was just looking at that title the other day and wondered if it would be good, but didn't have time to actually read the quip. Now I know! And that's half the battle. GO JOE!

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