The National Taxpayer Advocate (an independent organization within the IRS that ensures that every taxpayer is treated fairly) has recognized the significant tax burdens facing the marijuana industry.
Even though many states have legalized marijuana sales, the federal government has not. And there are significant federal tax-related consequences for businesses engaged in the “trafficking” of marijuana.
On the federal income end, “gross income” includes “all income from whatever source derived,” including illegal sources like marijuana. Federal courts have consistently upheld IRS determinations that marijuana-related business, including state compliant marijuana dispensaries, have illegal taxable income. These businesses must also pay employment taxes.
On the federal deduction end, while businesses can generally deduct expenses from their gross income there are exceptions. One exception forbids deductions if the business consists of illegally “trafficking” in Schedule I or II controlled substances, like marijuana. So, this prohibits deduction of otherwise legitimate business expenses.
In short, taxpayers involved in the production, distribution, or sale of marijuana should be aware that there are significant federal income tax challenges that apply to the marijuana industry.
To help, the IRS has recently posted guidance on IRS.gov/marijuana, educating and informing marijuana-related business owners of the specific challenges they may face.
𝐓𝐡𝐨𝐦𝐚𝐬 𝐉𝐚𝐦𝐞𝐬 𝐂𝐚𝐫𝐫𝐨𝐥𝐥, 𝐏.𝐂. 𝐢𝐬 𝐚 𝐥𝐚𝐰 𝐟𝐢𝐫𝐦 𝐟𝐨𝐜𝐮𝐬𝐢𝐧𝐠 𝐨𝐧 𝐟𝐞𝐝𝐞𝐫𝐚𝐥 𝐚𝐧𝐝 𝐬𝐭𝐚𝐭𝐞 𝐭𝐚𝐱𝐞𝐬 𝐭𝐡𝐚𝐭 𝐩𝐫𝐨𝐯𝐢𝐝𝐞𝐬 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥𝐬 𝐚𝐧𝐝 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬𝐞𝐬 𝐰𝐢𝐭𝐡 𝐭𝐚𝐱 𝐡𝐞𝐥𝐩 𝐚𝐧𝐝 𝐬𝐨𝐥𝐮𝐭𝐢𝐨𝐧𝐬 𝐟𝐨𝐫 𝐭𝐨𝐝𝐚𝐲 𝐚𝐧𝐝 𝐭𝐨𝐦𝐨𝐫𝐫𝐨𝐰.
𝐎𝐯𝐞𝐫 𝟑𝟓 𝐘𝐞𝐚𝐫𝐬 𝐨𝐟 𝐄𝐱𝐩𝐞𝐫𝐢𝐞𝐧𝐜𝐞 𝐢𝐧 𝐈𝐑𝐒, 𝐍𝐘 & 𝐍𝐉 𝐓𝐚𝐱 𝐀𝐮𝐝𝐢𝐭𝐬, 𝐀𝐩𝐩𝐞𝐚𝐥𝐬 & 𝐓𝐚𝐱 𝐏𝐥𝐚𝐧𝐧𝐢𝐧𝐠.