280E Tax Solutions

As an industry pioneer, AAFCPAs has extensive experience advising operators on to strategies to solve the cannabis industry’s annual $1+ billion income tax challenge: Internal Revenue Code (IRC) Section 280E.

AAFCPAs was an industry pioneer and since 2012 has been deeply immersed advising cannabis businesses in tax, finance, and outsourced accounting! We have extensive experience advising operators on strategies to solve the cannabis industry’s annual $1+ billion income tax challenge: Internal Revenue Code (IRC) Section 280E.

When calculating taxable income, the IRC § 280E states that 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.

Operators are permitted to make an adjustment (not a deduction) by subtracting cost of goods sold from gross sales when computing gross income. COGS refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs.

Cannabis Tax Advisory and Compliance Solutions:

  • Guidance on how entity structure impacts 280E planning
  • Guidance on identifying and segregating non-deductible expenses from deductible business expenses
  • Guidance on optimizing deductible business expenses/costs of goods sold
  • Calculation of Inventory Balances
  • Compliance with Internal Revenue Code § 280E
  • Tax planning & preparation of federal and state income tax returns
  • Tax guidance for operators considering expansion into a new jurisdiction
  • Research of feasibility and applicability of tax credits
  • Consultation on sales and use tax filings
  • Guidance on processes to ensure compliance with federal and state: IRC Section 280E compliance; Income reporting; Cash payment options; Reporting large cash receipts; and Estimated payments.
  • Advice to ensure accurate books & records pertaining to transactions, so that the IRS will allow expenses claimed
  • Advice on systems that can streamline indirect tax compliance and reduce administrative costs. This includes calculating liability, tracking and adhering to advanced payment schedules, and filing of all applicable returns.

We are committed to staying abreast of changes to IRC, tax regulations, Revenue Rulings, Revenue Procedures, private letter rulings, and court decisions, and advise cannabis clients on how changes may impact their tax position. Federal legalization will be welcomed by operators, but will no doubt add new layers of complexity to an already mammoth tax compliance burden.

With national recognition, our multi-disciplinary team of advisors include: CPAs, CFOs, estate planning & tax attorneys, wealth advisors, as well as business process, data analytics, IT, and cyber security professionals. Learn more about the Tax, Advisory, Accounting & Assurance Solutions AAFCPAs provides for Cannabis Businesses.>>

“AAFCPAs delivers on all their promises. They have full command of the nuances of the complex Cannabis industry. They provide honest and direct feedback on our financial performance. Their Managed Accounting Solutions help us execute on our growth plans utilizing best-practices in the industry. We utilize their tax expertise to make decisions that minimize our tax burden. They are a great value to me, and our organization and I highly recommend their services and people.”
Cultivate Holdings, Inc. | Stephen Barber, Chief Executive Officer
“C3 Industries is a fully vertical multi-state operator with retail, cultivation, and manufacturing operations in Oregon, Michigan, and soon-to-be Massachusetts & Missouri. The amount of work our AAFCPAs assurance and tax team puts in makes me smile. We have a complex business structure, the need for clear, concise, and auditable financial statements, and 280E requires constant visitation and brainstorming to maximize our tax position. It’s refreshing to see the AAFCPAs team dive in, evaluate tax & GAAP implications, and come back with sound conclusions and next steps—which has not been my experience with prior firms. They put in the time and effort to digest 500-page accounting guides and then send me synopses of what I need to know. It has been one of the most pleasant assurance and tax relationships I’ve ever had. Our AAFCPAs team is important to us, and we are happy to continue to grow this relationship in the years to come.”
C3 Industries | Nathan Crankshaw, VP, Finance