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Taxation: What Cannabis Companies Need to Know

As states rapidly push the legalization movement forward, cannabis businesses walk carefully through a minefield of conflicts between their operations and the federal Controlled Substances Act that classifies the plant as a Schedule I drug. However, these conflicts reach far beyond how businesses and customers transact—affecting how Americans are taxed when it comes to cannabis-related products and services.

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The complex nature of state and federal tax procedures that apply to this industry makes it an uphill, seemingly impossible battle for budding cannabis entrepreneurs to reap the benefits other industries enjoy from tax deductions.

While federal law dictates that cannabis businesses must pay federal taxes, those businesses don’t enjoy the same federal benefits, such as the ability to make the same deductions other tax-paying companies can.

Cannabis companies are not permitted to deduct many expenses categorized as “ordinary and necessary,” such as wage payments, marketing, rent, and utilities. Federal law declares that they can write-off some COGS (Cost of Goods Sold), allowing deductions on materials and labor needed to produce products and the amount resellers pay for products. However, COGS they can’t deduct include indirect expenses such as handling costs and payroll fees.

As if the income taxes aren’t complicated enough, many states and local jurisdictions are enacting their own specialty taxes that are unique to where your business is located. In many cases, this is occurring at the state/local level and the different types of taxes, sales/excise/specialty, tend to make the atmosphere a moving target as rates can change on a monthly basis.

Taxes are a subject that shouldn’t be taken lightly. If your business is found out of compliance, the states can revoke your business license leaving the business owner personally responsible for any and all back-owed tax liabilities and owed taxes supersede any and all bankruptcy or business dissolvement.

Cannabis business owners seek clarity and simplicity when it comes to staying compliant and paying their fair share of taxes. Fortunately, the Alt Thirty Six platform makes this process easy, integrating state-of-the-art accounting services with automated and built-in tax calculation and remittance tools like our partners at Canna Taxware.  Untitled design-1Click To Tweet

Click here to learn about how our payment solutions can boost your cannabis business’ profitability, enhance your customer experience, and ensure comprehensive compliance at all times. Alt Thirty Six welcomes anyone who wants to be a part of the legitimization and normalization of the cannabis space to register for an account.

Click the link below to download Alt Thirty Six's e-book titled "Financial Compliance in 2020: Lessons from Last Year" to learn more helpful insights and tips that'll ensure your cannabis business remains fully compliant while keeping operations profitable and streamlined.

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