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.

Creative Tax Solutions for Cannabis Businesses

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.>>

Contact AAFCPAs

We look forward to speaking with you to determine how we may best solve your needs. A firm representative will reach out to your within one business day. Looking for additional ways to reach us? Visit our Contact Page. >>