Everything Your Cannabis Business Needs to Know About 280E

While running a cannabis business can be extremely lucrative, it also comes with its own set of challenges. This is especially true when it comes to cannabis tax law, as there are special considerations that need to be made. 

Understanding the 280E tax code is a crucial part of cannabis accounting, and here’s everything you need to know.

What Is IRS Section 280E?

Under federal law, cannabis is still considered a Schedule I substance. Back in the 1980s, the IRS created the 280E tax code to prevent businesses from taking tax deductions of credits for trafficking controlled substances. 

While medical cannabis is legal in Pennsylvania, it still falls under this umbrella. According to Section 280E, cannabis companies cannot deduct taxes for things like payroll, rent, utilities, and advertising in the same way that other organizations can. 

How 280E Tax Code Affects Your Business

Section 280E affects every business within the cannabis industry. However, the way that it impacts you directly will differ based on your expenses, structure, and operations. 

Dispensaries

Unfortunately, most of your operating costs cannot be deducted when tax season arrives. This means that you will likely have a higher federal and state tax burden. 

Manufacturers or Processors

While other overhead costs may remain non-deductible, expenses for packaging, labor directly involved in production, and raw materials can sometimes be included in the cost of goods sold, which may be tax deductible. 

Multi-Entity Structures

Does your business deal with cannabis and non-cannabis activities? If so, only the cannabis-related side of your organization is subject to Section 280E. While this makes accounting and tax planning simpler, it’s important to work with a cannabis tax law professional to ensure that your taxes are filed properly. 

How to Minimize the Impact of the 280E Tax Code

Although you can’t avoid the 280E tax code, there are ways to reduce the burden. Understanding cannabis tax law is crucial in helping you avoid fines and penalties. Additionally, working with a cannabis accounting firm will help organize your books and catch potential issues. 

Why Work with a Professional Cannabis Accounting Firm?

The wrong approach to taxes can be devastating for any cannabis business because the cannabis industry is heavily regulated. When you work with a professional cannabis accounting firm, you can be confident that they will understand the complexities of 280E, as well as other applicable requirements.

Choose SD Associates, P.C. for Cannabis Accounting in Pennsylvania

At SD Associates, P.C., we are here for all your cannabis accounting needs. With our decades of industry experience, we are experts at cannabis accounting in Pennsylvania and will provide you with all the necessary information to ensure you are set up for success. 

Navigating the world of cannabis tax law can be overwhelming, but our team is here to simplify the process so that you have one less thing to worry about when tax season arrives.
Contact our Elkins Park, PA office today to set up a consultation to learn more about cannabis accounting laws and the 280E tax code.