let us help you do cannabis accounting right.
When the tax code has stacked the deck against you, you need an accountant fully versed in the nuanced challenges you face.
are you doing it wrong?
If you're not using a cannabis accounting expert...probably.
With all the federal and state regulations to navigate, accounting for cannabis is very complex.
Section 280E is one sentence in the tax code with major implications when it comes to accounting.
To account for 280E expenses properly, the person handling the books for a cannabis company must understand:
- Cost accounting
- Accrual accounting
- Generally accepted accounting principles (GAAP)
- Full absorption accounting
Cannabis business owners will find it hard to find a generalist accountant who understands a lot of these concepts, largely because an understanding of GAAP and cost-based accounting is not required for most small- to medium-sized businesses.
GAAP is actually required for publicly traded companies overseen by the U.S. Securities and Exchange Commission, so it requires an extra skill set beyond everyday small business accounting.
In the case of Alterman vs. IRS Commissioner, a dispensary and cultivator was denied what would have been acceptable deductions due to poor record keeping, shoddy books, and a host of other accounting issues. The tax court held that Altermeds LLC was negligent due to their failure to keep adequate books and records or to substantiate items properly. They had to pay tax on all the deductions that were thrown out, plus penalties, including an additional 20% accuracy-related penalty attributed to negligence, plus interest. This dispensary may is no longer be around but the lesson their case taught on the extreme value in proper accounting and regulatory compliance is here to stay.
Without proper accounting and entity design, you are allowing the IRS to take advantage of you, your business, and your wallet and leaving yourself vulnerable.
Maintaining meticulous records will help ensure you are able to maintain your license, banking and funding. It also will keep you out of hot water with the IRS.
