calyx cannabis

COULD RESCHEDULING CANNABIS POTENTIALLY SET BACK FEDERAL LEGALIZATION BY DECADES? 

calyx cannabis

It appears that cannabis is on track for rescheduling by the end of 2024. However, the primary benefit we anticipate for our clients is the elimination of the 280E tax burden. The author of ‘Congresswoman Says Marijuana Rescheduling Could Set Full Federal Legalization Back ‘Another 50 Years’,’ published by Marijuana Moment, raises a compelling argument.

Fortunately, by employing strategies such as the 471(c) inventory method over the past decade, Calyx CPA has managed to save our clients tens of millions in taxes. This has been achieved by substantially reducing the amount of phantom income reported due to 280E, bringing our clients’ tax liabilities closer to those of fully legal businesses. Therefore, should the industry continue to focus its efforts towards achieving full federal legalization instead of settling for the short-term reward of rescheduling? This decision is more than a mere strategy; it represents a critical juncture that could significantly influence the future of the industry.

The author suggests that if the industry shifts its focus away from fighting 280E but secures some other form of federal recognition, it might still confront financial challenges. However, any federal change could offer benefits such as improved access to banking and increased investor confidence, which could potentially outweigh the ongoing tax issues.

In contrast, the prospect of full federal legalization presents a comprehensive solution. It aims to address a wide range of issues, including the repeal of 280E, simplification of banking processes, normalization of tax treatments, and resolution of legal uncertainties. The potential benefits are substantial, ranging from increased investments to advancements in research. However, achieving this requires widespread congressional support and alignment with federal policies, presenting a challenging and potentially prolonged endeavor.

Faced with this dilemma, the cannabis industry must consider the immediate advantages of a partial legislative victory against the long-term benefits of full legalization. This decision hinges on an assessment of the political landscape, the immediacy of the industry’s needs, and its long-term objectives.

In conclusion, the direction chosen by the cannabis industry at this crossroads will profoundly impact its future. This decision necessitates not only a deep understanding of the legislative environment but also a clear vision for the industry’s future. As the cannabis sector continues to expand and mature, the path it takes now could define its role in the economy and society for many years to come.

 

https://www.marijuanamoment.net/congresswoman-says-marijuana-rescheduling-could-set-full-federal-legalization-back-another-50-years/?

marijuana_business_inventory

HOW DOES INVENTORY INCREASE NET INCOME?

I had a client inquire about why an increase in inventory increased their net income. I explained that for most businesses purchasing products for resale, as well as supplies and materials, typically categorize these items as ‘Cost of Goods Sold’ (COGS). COGS directly offsets gross income and subsequently reduces net income.

However, at the end of the financial year, often accountants request clients to report their ending inventory. Once this is reported, accountants reallocate funds from COGS to the inventory on the balance sheet. This adjustment lowers the COGS, thereby increasing net income. This adjustment can often surprise business owners, particularly in their first year of operation when inventory is being accumulated for the first time.

A significant point to note is that businesses often have substantial funds tied up in inventory. However, they cannot deduct the cost of this inventory until it is sold, which might be in the following year. This leads to a situation where they might have to pay taxes on income despite having low or negative cash flow. A practical tip is to minimize inventory accumulation towards the end of the year and consider replenishing it at the beginning of the next year.

Notably, as of this recording, most businesses are not required to report inventory if their gross revenue is under $29 million. If your business falls under this threshold and your accountant still asks for inventory reporting, it might be wise to get a second opinion as to whether it is necessary to report inventory.

An exception exists for certain industries, such as the cannabis industry, which are subject to specific regulations like Section 280E. In these cases, businesses are required to report inventory as they use particular methodologies that capitalize COGS to inventory, allowing them to deduct otherwise non-deductible expenses.

Businesses with revenues under $29 million can generally employ the cash method of accounting, which permits them to write off purchases for resale, supplies, and materials as COGS and benefit from these deductions in the year they occur.

Assete write off

WHAT KIND OF ASSET CAN I WRITE OFF?

As a tax planning strategy, particularly towards the end of the year, a common question from clients is: “What can I buy to decrease my tax liability?” Many consider purchasing vehicles or making down payments on properties or building facilities. However, it’s important to note that there are limits. For example, buying real estate, including land and building, doesn’t usually offer immediate tax deductions. In fact, down payments on property in and of itself don’t qualify for immediate deductions.

The main category of assets eligible for immediate depreciation (sometimes called ‘bonus depreciation’) includes equipment that can be described as losing value upon purchase and is also not permanently affixed to a building or property. This category encompasses a wide variety of assets, from computers to tractors, dehumidifiers, trimming machines, and even essential building equipment like appliances.

For vehicles, to qualify for bonus depreciation or 179 deductions, they must have a demonstrable and primary business use. Purchasing cars for tax write-offs is often risky if they are not used exclusively for business. For instance, vehicles must be used over 5% of the time for business purposes to be eligible. If this percentage drops, the IRS may require you to recapture formerly deducted depreciation. If business use is less than 50%, consider opting for taking a mileage deduction (currently at $0.65 per mile), which is safer. For business owners, reimbursing oneself for mileage from the business for the use of a personal vehicle is recommended. This reimbursement is non-taxable and counts as a business expense. Remember that these business miles must be meticulously recorded for the deduction to be substantiated.  

Land, on the other hand, is not depreciable. It generally appreciates in value, and the IRS doesn’t allow depreciation as it’s seen as a cash-for-property exchange without actual value loss. Residential rental properties can be depreciated over 27.5 years and commercial buildings over 39 years, but these are long-term deductions and don’t offer much immediate tax relief.

Remember, specific equipment, such as above-ground irrigation systems, that aren’t permanently attached to the property can also qualify for bonus depreciation. Investing in equipment can be a smart tax strategy, especially if these are items you plan to purchase regardless.