Now that you’ve got your Chart of Accounts selected and up and running, it’s time to tackle that beast of a compliance issue – 280e. Your Cannabis Accounting deserves the same attention you give the rest of your business.
Remembering Those Webinars and Laws
It’s not like you haven’t prepared for it. You’ve probably attended a lot of webinars about it, maybe even gleaned a thing or two about what it is. (It’s not really the most exciting subject, but your attorney insists you should know a thing or two about it.) You know the general gist of it though. Most Cannabis-related expenses are not deductible on your business tax return.
Well, now it’s March 1, and you remembered that you were supposed to do something about this. IRS Section 280(e) states that, due to Cannabis appearing on as a Schedule 1 Controlled Substance on Federal regulations, those expenses you paid to your staff are not going to be deductible. It’s a drag but you need to be ready for it.
(Lots of issues with that law, especially since your state has some of the best social equity laws in the country and has a beautiful community of supportive entrepreneurs. Maybe the Federal government can finally get its act together, but let’s save that for another chapter.)
Getting Your Stuff Together
You think you have most of your costs separated out on your new Chart of Accounts. You did a good job tying out your inventory every month. But, you have a nagging feeling that some of the costs you capitalized are not going to hold much water if you get audited.
Oh no, you think. I never got those $50k invoice support documentation for the new vape cartridges I ordered added to my accounting software. You shrug it off, as you’ve got other things to worry about today, like the new Instagram reels that you and your marketing agency worked on. They look amazing, and are a lot less stressful than those spreadsheets. Cannabis Accounting can wait another day.
Time for Taxes
Well, now it’s March 14. You forgot about finding that supporting documentation and at this point it’s probably not worth your time to go try to find it. At this point, you just want to get all of this over with. Which way do you go to fix it? Do you:
A. Stick your numbers that came out of your QuickBooks file onto your TurboTax and call it a day
If you choose A…
It’s two years later. You go through your mail and marvel. Press clippings about your Cannabis business and all of the success you have had! Some offers from investors to inject more cash into your business! One piece of mail catches your eye, but not in a good way.
It’s from the IRS.
You open the letter, your hands trembling. You unfold the piece of paper, and there it is. You are scheduled for an audit to account for your tax deductions that you took on your return. The audit is happening next month, when you have already scheduled a vacation. Looks like the vacation is about to be postponed. You should never have handled your Cannabis Accounting alone. This is one lonely, scary feeling.
If you choose B…
You poke around Google, finding some accountants who can help you get out of this self-made mess. You check out Morem & Waller’s Services page and like what you see. You also see that they are accessible and ready to talk to you.
So, you book a time on Mark and Betsy’s Calendly for later today. They schedule a call with you on Zoom and immediately file an extension on your behalf. You talk to them, and their expertise immediately puts your mind at ease. Later that week, you sign an engagement letter with you, and they immediately send you a long list of things that will help get your books in order. (You realize this is going to be kind of a pain, too, but better late than never.)
A few weeks later, you upload all the docs you need to upload. Mark and Betsy have already set up your new Perpetual Data Room, which makes you feel at ease. You’ll never lose any slip of paper again, and it’s all just… there. Amazing.
More importantly, they get your accounting up and running on a monthly basis. You even set up some KPIs which will go on your financial statements on a monthly basis, letting you get a pulse for what is happening on the business so you can celebrate wins and react to issues quickly.
Fast forward two years, and you’re on stage at MJBizCon, telling your success story on how you built your business on the bedrock of solid Cannabis Accounting. Congratulations!