• LinkedIn
  • Facebook
  • Twitter

CPAs & Advisors to the Cannabis Industry Since 2009 Schedule An Appointment

Bridge West LLC
  • About Us
    • Firm Overview
    • Leadership
    • Our Companies
    • Industry Affiliates
    • International Affiliations
  • Services
    • 280E Mitigation
    • IRS and State Audit Assistance
    • Advisory Services
    • License Application Advisory Services
    • Business Valuation
    • Financial Statement Audit and Other Attest Services
    • Tax Compliance
    • Outsourced Accounting Services
    • Investment Advisory
    • Technology Services
  • Industries
    • Cultivator
    • Processor
    • Dispensary
    • Vertical
    • Hemp
    • CBD Retail and E-commerce Operators
  • Events
  • Cannabis News
    • CannaBlog
    • Podcast
    • Webinar
    • Videos
  • Client Access
  • Careers
  • Contact
  • Menu Menu

Year-end Cannabis Tax Planning: Preparing Your Business for the 2023 Tax Season

CannaBlog by Cory Parnell, CPA, COO of Bridge West

The end of the year is busy for most businesses and individuals, and it can be incredibly hectic for cannabis business owners and operators also. While it’s ideal for cannabis businesses to prepare their books for year-end in the fall proactively, it’s not uncommon for owners and operators to consider tax planning endeavors as the year begins to close.

Whether you have already begun year-end tax planning or you are just getting started, the following tips can help you avoid significant penalties and prepare for 2023.

Engage an experienced cannabis tax professional for a 280E analysis

Section 280E limits cannabis companies from deducting the cost of goods sold. An analysis of 280E can help you maximize legal deductions for all your business activities, especially concerning Code Sec 471c, which was created in 2018.

Perform routine inventory counts

Knowing your inventory at various points in the year and keeping high-quality inventory records is directly correlated to your tax. We recommend that you perform monthly inventory counts and annual counts to keep your records in line. It is also crucial to ensure your count agrees with your state-mandated inventory tracking software.

Minimize year-end inventory to match demand

When a product is sitting in inventory and not flowing through COGS, you’re putting yourself at risk of a much higher tax liability. We recommend minimizing year-end inventory as much as possible to reduce your tax liability, yet still have enough to meet market demand.

Document employee activities in job descriptions

Employees’ activities determine whether their labor is deductible (allocable to COGS) or non-deductible. We recommend documenting labor for all the tasks in your operation and documenting activities in employee job descriptions to support the allocation of labor to deductible COGS.

Review your books and tax returns

Make sure you take the time to review your books and tax return with your experienced cannabis tax professional.  Ask questions to make sure either expenses or vendors that may qualify as part of goods sold are not either miscoded or misclassified in selling, general and administrative expenses.

Make sure you are not paying too much in sales tax

In some states, there are sales tax breaks for the purchase of equipment or materials used in agricultural manufacturing activities. Sales tax exemptions may apply to cannabis, but sellers must collect tax unless you present an exemption certificate. If you have paid sales tax for equipment or materials used in agriculture or manufacturing, you may be able to get a refund.

Review entity selection and assets in the entity

You should always discuss entity selection to make sure the current entity makes the most sense for your organization today based on current tax law, court cases, or strategic goals that may have changed. This includes reviewing assets within the entity, which may include intellectual property or real property that you may want to move to a new entity.

Never fall behind on taxes

You need to stay current on all taxes, including excise taxes, income taxes, and payroll taxes. Once you fall behind, it is nearly impossible to get caught up. If you are behind, you need to review your overall business with an experienced cannabis tax professional.

Make sure you file IRS Form 8300 when required

It is essential for cannabis business owners to know about Form 8300. This is an IRS/FinCEN Form that reports cash payments received over $10,000 in a trade or business. The law requires that trades or businesses report transactions via Form 8300 when customers use cash in a single transaction or related transactions over a 12-month period. Make sure you are filing these as the penalty is significant.

Plan on how to remit tax payments

Some states prefer or require taxes to be paid via electronic funds transfers (EFTs), which can be challenging given cannabis-related banking challenges. Planning ahead on how you will pay these taxes is crucial.

Keep good records and proper documentation

One of the issues that we have seen in an IRS audit of a cannabis business is that the operator does not have receipts or support for qualifying expenses. This ends up costing the cannabis company a significant amount in income taxes.

Prepare 1099-Misc or 1099-Int or 1099-OID

Make sure that you prepare 1099-Misc or 1099-Int by the end of January 31.  Also, a good practice is to have all vendors provide a new W-9 beginning in January 2023 before making you pay any outstanding invoices. This will help make sure that you have all the correct information to prepare 1099-Misc. Make sure you understand when you are required to issue either a 1099-Int or 1099-OID.  If you are not sure, please contact us, and we can guide you through the reporting requirements.

Review your strategic floor plan

Review your business’ floor plan to identify opportunities to deduct rent and other related items under 280E. Cushy offices and lounge areas are nice, but won’t help lower your taxes. Minimize any space not directly related to storing inventory, security, or product handling.

Reconcile all balance sheet accounts

Make sure that you have reconciled all of your balance sheet accounts such as cash, bank accounts, accounts payable, loan balances, payroll taxes payable, accrued payroll, and other liabilities. This needs to be done to make sure you have all of your income and expenses recorded. We have reviewed books where many of these accounts are not reconciled. Business owners assume they are making money when we have closed the books, resulting in an operating loss for the business.

Year-end tax planning is critical to protect your cannabis business’ finances. If you would like assistance or to schedule a confidential consultation, contact Cory Parnell, CPA, Chief Operating Officer, Bridge West LLC at cparnell@bridgewestcpas.com or 651-287-6327.

Newsletter Registration

Recent Posts

  • Minnesota Cannabis Updates 2023: Current License Holders
  • Why You Should Outsource Accounting for Your Cannabis Business
  • Updated Cannabis Industry Events
  • The Cannabis Industry and Tax Implications of Entity Structure: Issues to Consider for Cannabis Operators
  • What is Form 1099: Key Details You Need to Know

Services

280E Mitigation

IRS and State Audit Assistance

Cannabis and Hemp Advisory Services

Cannabis License Application Advisory

Business Valuation

Audit and Assurance

Tax

Outsourced Accounting Services

Investment Advisory

Technology Services

Resources

Contact

Events

CannaBlog

Leadership

Client Access

Serving all cannabis legal states

Headquarters:
7900 International Drive, Suite 800
Bloomington, MN 55425
(303) 651-0304
View Map >

© Bridge West LLC™ 2023 Privacy Policy
  • LinkedIn
  • Facebook
  • Twitter
Observations & Take-Aways from MJBizCon 2022How Year-Round Tax Reviews Protect Cannabis Operators
Scroll to top

This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies.

OKLearn more

Cookie and Privacy Settings



How we use cookies

We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.

Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.

Essential Website Cookies

These cookies are strictly necessary to provide you with services available through our website and to use some of its features.

Because these cookies are strictly necessary to deliver the website, refusing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.

We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.

We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.

Other external services

We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.

Google Webfont Settings:

Google Map Settings:

Google reCaptcha Settings:

Vimeo and Youtube video embeds:

Privacy Policy

You can read about our cookies and privacy settings in detail on our Privacy Policy Page.

Privacy Policy
Accept settingsHide notification only