3 Major Accounting Problems That Cannabis Businesses Face

3 Major Accounting Problems That Cannabis Businesses Face

20 states in the US have legalized cannabis for medical purposes, and two states Colorado and Washington even allow its recreational use. The perception about cannabis is changing, which has resulted in an increase in the number of cannabis businesses around the country.

These businesses, however, have little, if not any information about the industry, and state and taxation laws, which often results in accounting problems. In this post, we discuss some of these problems and how cannabis businesses can tackle them.

1. Inability to Get Bank Account Despite the fact that cannabis industry is growing at a steady rate, businesses still struggle to get a bank account. Even in states that have legalized the use of cannabis, federal law does not allow businesses to deposit money in a bank account. Handling cash at the store level can result in mismanagement and also increases the risk of robbery. Weed accountants can help address this problem by finding a way around administrative hoops.

2. Zero Business Deductions Though cannabis are legalized by 20 states, they are still banned by their use for any purpose is still banned by the federal law. The internal revenue code 280 E states that businesses that deal in substances banned by the federal law cannot claim any deductions. The taxable income, therefore, is way higher for cannabis businesses as compared to other businesses that can claim deductions.

3. Uncertain Tax Audits As they are not recognized by the federal government, cannabis businesses are constantly under the IRS’ scanner. As soon as the authorities spot a red flag, they waste no time in conducting an audit. Surprise audits can catch a cannabis business off guard, often forcing the owners to shut down.

The Solution Though 20 states have legalized cannabis, businesses still have a long way to go before the perception of public and government changes. Researchers around the world are working to unravel the hidden medicinal properties of the magic herb. In not very distant future, the world will be introduced to the wonders the herb can do. When that time arrives, cannabis businesses will strike gold.

But, to make the most in future, businesses must pay attention to the existing finance management problems and consult a weed accountant to address them. These professionals have a thorough understanding of taxation and other rules governing the industry and can help businesses avoid landing on the wrong side of the law.