PP 105 | IRS Helping Cannabis

 

Cannabis is ever-changing, and there are so many things that we are getting in front of us daily that are changing the way we look at our businesses. As we look at it, the future of cannabis is expanding. Tony Frischknecht discusses cannabis and regulation, tax investing, and much more. The IRS knows that cannabis is going to be legalized. In this episode, he emphasizes why good records assist in monitoring. Be prepared to enlighten yourself on how you could go in the right direction in your cannabis business!

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IRS Helping The Cannabis Business To Grow And Succeed

Please hit the subscribe button for the show or YouTube Channel so that you can receive alerts when we have new shows coming out. It’s the easiest way to follow us and make sure you are getting caught up on everything, cannabis, regulation, tax, investing and so much more. I’m excited to have you. Cannabis is ever-changing. There are so many things that we are getting in front of us daily that are changing the way we look at our businesses and the future in cannabis as it’s expanding.

Speaking of expanding, I came across a brand new article. If you aren’t familiar with MJ Biz Daily, they are a great source for news. This is an article that I found on their site. We are going to be talking about how the IRS is going to help our business. This sounds counterintuitive. How can they help us? They haven’t helped us in cannabis, mostly because we are not Federally illegal. What can they do for us?

They have been auditing us, as many of you know, for quite some time. They haven’t given us any clear guidance. This clear guidance is a double-edged sword. They are going to be giving you information to help you file your taxes. However, as most of you know, this also draws a line in the sand. When you argue for certain costs or trying to reduce the taxes that you have to pay every year, it makes it more challenging.

PP 105 | IRS Helping Cannabis

IRS Helping Cannabis: Good records assist in monitoring a business, its progress, deductible expenses, and substantiate items reported on a tax return. A good record-keeping system includes a summary of all business transactions.

 

How IRS Is Helping The Business

This is a little bit sticky right here. Let’s go through this real quick. The IRS launched a program aimed at helping businesses in state-legal cannabis markets pay their Federal taxes properly under 280E, the owner’s section of the US Tax Code that disallowed standard deductions for such businesses. This program titled, The Cannabis/CannabisInitiative, was announced on the IRS website and written by De  Lon Harris, Commissioner of the IRS Small Business Self-Employed Examination Division.

This all sounds good. They are coming out and giving us some information to follow. The goal of the initiative is to implement the strategy to increase voluntary compliance with the Tax Law while also identifying and addressing non-compliant. Harris wrote highlighting the fact that the IRS website also has a specific information page for those in the cannabis space. It seems to be helpful. They are going in the right direction but is this helpful to you and your business?

Harris wrote that the new program would entail more training and job aids for IRS agents conducting cannabis business audits. I’m not exactly sure what more aides mean. It looks like they are going to be doing some training. My guess is they are going to be taking some of the auditing information that they have gotten from the industry over the last decade and they are going to be training their officers to use some of this information to conduct better audits. That’s what I see.

Traffic cannabis in contravention of federal and state law is subject to the limitation of the internal revenue code. Click To Tweet

Some more things that entail is coordination and a consistent approach by the IRS towards the entire cannabis industry. That doesn’t make much sense. I’m not sure exactly what that means either. Figuring out new ways to identify non-compliant taxpayers, that sounds tricky. What I have noticed when dealing with the government, especially the IRS is they are going to spend their time on the people that are following the guidelines. It’s the easiest thing for them to do.

I know Biden is coming out pledging all this $10 billion in funding to help the IRS audit and some of these larger entities and the very wealthy. I know that’s coming. However, I’m not sure exactly how they are going to take that. Anyway, that’s what’s it entails. Collaborating with external stakeholders to educate more in the industry as their tax obligations under 280E. That tells me they are probably going to some events or creating some IRS events for people to come to check out, which is good.

You are probably going to see accountants and CPAs attending these. I know taxes are not the most exciting thing. However, they are one of the most beneficial things to understand when taking a profit home at the end of the day. This is inseminating more information to those in the industry on how to comply with 280E. They are going to take the auditing information that they have built up over the last several years. They are going to lean to say, “This is how you do this. This is how we allow this.” They are going to start dissecting that for you. This is a positive thing, especially for the accountants out there who don’t know anything about the cannabis industry. They need to be aware of this.

Harris goes on to say, “This is truly groundbreaking efforts for our agency.” He’s patting himself on the back. Harris added that he has been conducting outreach to those in the industry and has spoken at three cannabis industry events in 2020. I’m not sure which ones he spoke at. However, for those of you that have been trying to go to events since the lockdown has led up, I’m not sure that they are massive events. You’ve got to take that with a grain of salt and be like, “How many events and people has he outreach to and gotten information?

PP 105 | IRS Helping Cannabis

IRS Helping Cannabis: If you want to create a good relationship with the owners of that company, you need to go above and beyond to receive raises because that owner isn’t even paying himself right now.

 

Review Of The IRS Page: FAQs

He goes on to say, and he clarified, however, that cannabis and cannabis business owners also need to understand that all cash-intensive businesses can be and are audited. That’s pretty plain in this day telling you that if you are in cannabis, you are going to be audited now. With that, I’m going to take us to the IRS page. Let’s go to review. What I’m going to do is I’m going to review this IRS page that gives some direction to you, the business owner, on what needs to happen and how to be compliant as a tax-paying citizen or a tax-paying entity.

A key component in promoting the highest degree of voluntary compliance on the part of taxpayers is helping them understand and meet their tax responsibilities while also enforcing the law with integrity and fairness to all. The article provides general guidance, including frequently asked questions for taxpayers in the cannabis industry.

IRS Code 280E and the cannabis industry, “Businesses that traffic cannabis in contravention of Federal and State Law are subject to the limitation of Internal Revenue Code Section 280E. The cannabis industry facts address Federal tax filing and information report requirements specific to taxpayers in the industry.” They have a report. You want to go into depth on this. I want to touch on this to make sure you are aware so you can access this information. Take this information that I’m giving you.

Not only read it yourself but share with your tax preparation or if your CPA, whoever you have done that for you. Income reporting, “Income from any source is taxable and taxpayers are generally required to file a tax return to report that income to the IRS. Many cannabis industry businesses conduct transactions in cash, which need to be reported like any other form of payment.” There’s a publication guide that you can click on to find some more.

The reality is most of these cannabis owners are barely making their rent at home because they are paying out everything that comes in. Click To Tweet

This is standard practice for any business. We have cash payment options that are available for un-banked taxpayers. Some IRS taxpayer’s Assistance Centers accept cash. “Call this number for a location near you.” This is something that I experienced paying our city tax. You guys may be having this issue now. What’s happened is a lot of places won’t accept or they never accepted tax payments in cash. This is going back here now.

We were supposed to report our income, which I stated in income reporting. Now there’s a Catch-22. There has been for quite some time that you couldn’t go and pay your tax payments in cash. That hasn’t been the case for a while in a lot of states. If you are new in the states, you are probably going to have to figure out how to do this still. This is coming out as a positive. That means if you have an issue and it’s like, “Let’s call this number and see where the location I can drop this cash off.”

To call to see what your options are, “It’s (844) 545-5640. Call that,” it says. It’s maybe near you so you couldn’t have some issues. The great thing about this, though, is if you have somebody that’s arguing with you, that’s at one of these facilities, you can pull this out and say, “The commissioner has come out and made a statement. Here’s your stuff. I’m allowed to pay this.” This just came out. You are going to find that most of your government entities are not going to hear this through the great band, fast enough. They might send out an email but emails stack up in your inbox. I recommend if you are having issues, print this out, bring this guide with you and say, “This allows me to do so.”

Let’s go next, large cash amounts. Any person in a trade or business who receives more than $10,000 in cash in a single transaction or related transaction must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. You are required to do this within fifteen days. I know there are a lot of MIPS licenses out there that are receiving payments in cash from the dispensaries. You’ve got to be real careful with this because you can get in trouble. There’s a thing called Structuring.

Structuring is going in and making cash deposits in your accounts or multiple accounts under that $10,000 limit. The IRS is wise to this. You need to make sure you are following these guidelines to the tee because they don’t mess around. This is something that they have been tracking for a long time. Even if you go and you try to put in $9,500 this day, and the next day come in and deposit $3,400. If you keep doing this, they will add that up.

I believe it’s within the 15 or 30-day period. They can start watching you as a business because you are avoiding filling out these cash deposit slips. Speak to your CPA or your accountant and decide on how you want to approach this. What is the best way, whether you are doing one lump sum every week? You are having one of these transactions happen weekly or how you want to do it. You’ve got to be careful because you don’t want to be carrying a lot of cash. Keep that in mind.

Next, estimated payments. Small business taxpayers often need to make quarterly estimated tax payments to cover their tax obligations. These are your estimated tax forms. If you haven’t filed one of these before, your CPA will know. He can provide you the documentation or go directly to the IRS and fill it out and IRS direct pay. The 1040 ES, Estimated Tax for Individual, will help to figure these payments. The fastest way to make these payments is to go direct to the IRS and make your payments there. They don’t cost you anything as well.

They are giving a basis for records. Good records assist in monitoring a business’ progress. Tracking deductible expenses can substantiate items reported on tax returns. A good record-keeping system includes a summary of all business transactions. Generally, it is best to record transactions daily. This is all standard stuff as well. They have a link here in the part of the records where you can figure out how they want you to do your record-keeping journal, leisure and electronic recording. This is standard stuff. You need to figure out a tax strategy with your CPA, especially if you are starting a cannabis business.

This is one of the things that is looked over by the 95% of owners out there. They don’t realize setting up their business in a certain entity will affect them long-term and steal everything they worked for at the end of their business when they want to sell it. I can’t stress this more but there’s more information on the website. I would go through this. It’s worth checking it out. Make sure you understand what it is because you would be able to use it to your advantage if people don’t understand that this is coming out, especially when you are talking to tax collectors. This also got some frequently asked questions.

The IRS Knows

How helpful is this? One thing I’m getting out of it, the IRS knows that this is going to be legalized. Why would we go to this point? We are almost going to see they are going to be in place and used to working with cannabis. They are going to have to figure out how to allow us to do regular business and swap 280E with taxes. They are going to have that switch. There’s a state tax now but then there will be a Federal tax. I hope that it’s not as onerous as 280E.

I hope it’s much less, at least so, that you out there can make a profit because why else are you here? That’s the point of having a business. That’s why cannabis has been so stressful. You are waiting and I appreciate your tenacity for growing your business in a world of regulation where you can’t make money because you are taxed so much. That’s extremely impressive. Keep doing it and keep pushing forward.

The other thing that this shows me is change is coming. This is setting the groundwork for you out there. I don’t know how exciting that is. Back even a few years ago, you didn’t have IRS talking about, “How can we do this way? Can we help out the business owners so that they pay their taxes?” It was completely quiet. You pretty much had to figure it out, and if you’ve got audited, it was like, “Nobody else was showing us or giving us any direction. Now you are auditing us. We basically don’t know the rules so we are doing everything we can to follow those.” That’s great.

The last thing it tells me is the narrative is changing about our industry. You are making it happen. It is moving forward. This is not taboo. This is not, “I heard John was starting a cannabis company. What an idiot? He wants to be a drug dealer. He’s looking to not pay his taxes.” If you are remotely involved in cannabis, you know how much tax revenue is being brought in by the state and the Federal government now. Some part of me almost thinks 280E never wants to be removed because they are making so much. That is literally sucking out all the margins that need to be paid to these businesses for the work that they have put in.

I will give you guys props out there. This is one of the hardest things ever to do. It’s not only hard being a business owner and waiting to get paid because some of you that are reading working in cannabis and wondering, “Maybe I should start my own thing. This is a great place to be as an entrepreneur.” It’s awesome. That’s an exciting part. However, the reality to this thing is most of these cannabis owners are barely making their own rent at home because they are paying out everything that comes in.

For those of the employees that, “I have been here a year and I need a raise.” “Why?” “I feel like I have been here long enough,” and that’s not an excuse. If you want to create a good relationship with the owners of that company, you need to go above and beyond to receive raises because that owner isn’t even paying himself now. I used to see it where it came 1, 2, sometimes 3 times around. I still was making peanuts at the time. I was making enough to get by, feed myself and pay my rent.

What I’m trying to say is that what you are doing is working and we are seeing it now at the IRS level. That’s insane. I applaud you for that so keep pushing forward. You, that are employees thinking about trying to become better employees or start your own thing, take this to heart. If you can come and become an asset for your owner, that makes sense for a raise but getting a raise because you have been there for a short period, when I say short period, twelve months or longer, that doesn’t mean that you deserve a raise.

PP 105 | IRS Helping Cannabis

 

Figure out how to become valuable to that owner, how you can save him time and money, and then ask for, “I want to be more valuable but I also want to create a better life for myself. What can I do to do that?” Have those discussions with him. He will appreciate it and he will understand that you are not thinking about yourself. You are thinking about the company and the team.

In ending, culture is a lot of the success of businesses. Creating that culture and understanding where everybody is at is a big part of it. You, as an Owner, have it all on you. Employees, there’s a little part that goes to you as well. The guy or the company that has employed you has risked everything to be here. You are understanding that and knowing that they don’t sleep a lot at night because they have so many responsibilities.

They want to make sure they take care of you and your families by providing a job and a great place to work. Remember that. Anyway, thanks so much for reading. Follow us on any of our social media. We continually come out with new information for you. I hope you enjoyed the show. See you next time.

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PP 100 | Against The IRS

Free 280E & 471(c) Documents

If you have been listening to the show you know that my cannabis business got Audited by the IRS! Not fun let me tell you.

However, Rachel my awesome lawyer who specializes in tax law sent me these two gems to share with my audience!

 

Cannabis Taxpayers Find Flaws in New Accounting Method Rules

The Growth of the Marijuana Industry Warrants Increased Tax Compliance Effort

 

Just input your information and I will send them right to your inbox!

Show Rachel your appreciation and head over to listen to her episode #100! 

 

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