Marijuana Store Owners to Pay the IRS for Something Still Not Federally Legal
Posted by azdrugrehabctr on January 28, 2015 under Uncategorized | 
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The federal government may still see pot as an illegal substance, but the people selling it still have to pay their taxes in those states that have passed legislation approving the sale of the drug.
Owners of recreational marijuana operations in states like Colorado and Washington are learning some hard lessons while preparing to file their first federal tax returns. The main one being that usual business deductions under section 280E are not being allowed for the business owners designated as potrepreneurs. The cost of selling marijuana is not deductible under the federal tax code, but not the cost of growing marijuana is deductible.
Business owners, CPAs, and tax attorneys in the marijuana industry gathered in San Diego at a marijuana tax symposium put on by the National Cannabis Industry Association to find ways to file the business tax returns for those legally selling marijuana for medical and recreational use.
“Labor for rolling joints is deductible,” said Denver CPA Jim Marty of Bridge West, but he said that retail rent, labor and advertising are not deductible. He added that the IRS differentiates between the two because, “They just are making it up.”
Marty admits that pretax profits in the legal pot industry are very good, but he added that without deductions for retail expenses business owners are, at best, put in the 60-70 percent tax bracket. The worst case scenario on retail pot business owners’ tax bracket is that it can actually exceed 100 percent.
Henry Wykowski, a former federal prosecutor, is now an attorney for the marijuana industry in California. He has gone to court twice against the federal government regarding the tax code. His efforts resulted in some legal workarounds for not being able to take advantage of the usual deductions. Wykowski says that if businesses in the legal marijuana industry do not handle deductions properly, “There’s no way you can make enough money to remain in business.”
As legal pot businesses are trying to figure out how to pay taxes to the federal government, others are estimating just how much the IRS has to gain from this newly formed business sector. Personal finance site NerdWallet took numbers from the United States census and other research to estimate how much money that would be collected by the government if pot was legalized nationally. NerdWallet estimates that the government could collect more than $3 billion in taxes annually. In California, where voters may decide to legalize all pot use in 2016, the federal government could collect over $500 million each year.
