+ Maximizing Cost of Goods Solder Under IRC Section 280E

Ask any accountant specializing in cannabis in 2017 and they would tell you - “You have to boost your cost of goods sold!”. This honeymoon has come to a quick end as the IRS is continuously winning cases in tax court against cannabis companies that claim very high cost of goods sold numbers. Determining cost of goods sold in cannabis is truly an organization wide initiative. At Greenbooks, we have a responsibility to advise to keep this number within the confines of what we believe the IRS will accept. This involves looking at Cost of Goods Sold correctly from a tax law perspective, while still maximizing the value for the client.

+ Entity Structuring

The organizational structure of a cannabis company has to be very carefully planned out to execute on two goals. The first is, of course, to minimize short term tax liability for the company as a whole. There is a variety of methods surrounding 471, 263a, farm credits, R&D credits, 199a etc that must be applied to each client depending on their specific situation. The second goal of a cannabis entity structure is long term sustainability. This goal means two things to us at Greenbooks. No company wants to constantly have to restructure their entities - this leads to a whole mess of financial and business reporting issues, recalibrating IT systems as well as different tax issues annually. Therefore whatever entity structure is instituted, the best approach is one that will likely last into the foreseeable future. The second component of entity structure is dealing with regulatory agencies - how likely is it that tax courts, the IRS and state governments agree with your classification of entities? In recent tax court rulings, we have seen many cannabis companies try to abuse entity structuring for their benefit to no avail. Long term sustainability means learning from others what doesn’t work as well as applying from other industries what does work. At Greenbooks, we are proud to provide this service to your organization.

+ Cannabis and Non Cannabis Divisions

The federal government has not made it easy for us - with hemp legal, cannabis and THC illegal, CBD now made legal and vaping teetering on the edge, it becomes increasingly difficult to tax plan in today’s environment. One very effective way of reducing tax liability is correctly separating your business activity between cannabis and non cannabis divisions. The reason this is important is because Section 280e is the primary driver behind large effective tax rates - but it only applies to businesses dealing with illegal drugs. Each Greenbooks client is going to have a unique situation in terms of determining cannabis and non cannabis divisions, business activities, and expenses. One thing is for certain - this is an extremely important tax consideration and one that will likely get challenged should you ever be audited by the IRS. Let the experts guide you here - this is often done hand-in-hand with Entity Structuring though some clients come to us wondering if existing entities qualify as cannabis/non-cannabis.

+ Why Choose Green Books

At Greenbooks, we have a responsibility to advise to keep this number within the confines of what we believe the IRS will accept. This involves looking at Cost of Goods Sold correctly from a tax law perspective, while still maximizing the value for the client.