With each passing year, additional states are considering legalizing the sale of marijuana for medical and/or recreational purposes. Ohio is among those states considering legalization, with the issue up for vote on the upcoming November ballot.
While state law is becoming more and more accepting of the idea, the act is still prohibited under federal law. As one can imagine, this can create some interesting tax issues.
Related read: How to Deduct Expenses Related to Personal Property
Under IRS Code section 280E, “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.” However, the code does provide for a deduction for the cost to purchase or grow the marijuana inventory (COGS).
The marijuana industry finds itself governed by contradicting law. Supported under state law, but prosecuted under federal law. Fortunately for business owners, the industry is so profitable that it will more than likely be able to survive being taxed on 100% of gross profits. Read: State marijuana laws map
Conflicting tax laws have you confused? We can help untangle the web of federal, state and local tax laws while ensuring your business strategy is solid and sustainable. I'm ready to have the conversation with you. Contact me at dalger@zinnerco.com or 216-831-0733.