WASHINGTON: Navigating the business byways of Washington State’s emerging legal marijuana industry is challenging; we are literally building the road as we walk it. The emergent nature of the business leaves us all feeling a bit uncertain as to the expectations, legalities and structures necessary for compliance. Under the, Internal Revenue Code section 280E, businesses cannot deduct expenses for trafficking illegal drugs.
The tax consequence is that expenses that would normally be deductible in the course of business are not – there is more taxable income which means you pay more taxes. Record keeping under 280E is challenging at best and is going to take some time to sort out. So far it is clear that you’ll be able to write off the cost of goods sold or COGS but how to structure costs and expenses will take some specialization. I’m writing today to offer some sound advice when thinking about setting up your accounting system. It will save you money over the long run.
Because marijuana remains illegal under federal law, section 280E denies marijuana businesses the ability to deduct their ordinary and necessary business expenses which makes it critical to work with someone who knows marijuana tax law and can help you get the best tax benefit from your system.
As a business consultant I help small and midsize companies set-up and upgrade their accounting systems. It can be challenging under the best circumstances, throw in ever changing rules and lack of legal precedent and you are in for some twists and turns. At the same time accounting is accounting and if done correctly you will have what you need. Trust me over the years I have seen it all – really smart entrepreneurs making fundamental mistakes when setting up their financial records.
In the current market you can hire a consultant with the systems expertise and accounting experience to set up your accounting system with an eye to the future; someone who will provide training for you and your staff and leave you feeling in charge of your financial records. It is amazing to collaborate in this way because you usually get more than you anticipated – you learn about and develop the foundation of your accounting system with a knowledgeable partner. This is a great way to get you what you need now and set up a system that will be ready to grow with you as your business does. For those venturing into the marijuana industry make sure that you find someone who is knowledgeable and paying attention to the emerging tax laws and industry standards. They can help you to clearly define your accounting logic. Take it from someone who knows – these simple steps upfront can save you time, money, and frustration going forward.
On the current market you can expect to pay $175-275/hr for a qualified CPA, $75 -125/hr for a systems specialist to support your accounting system set-up, and $25-65/hr for a bookkeeper to maintain your records. It is a good idea to check credentials and references before starting work with anyone.
Wendy Maguire works as a business consultant and specializes in setting up accounting systems for small to mid-sized companies with a special interest in canna-business.