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Cannabis Companies Can Deduct Business Expenses From Their Federal Taxes In States That Exclude the 280E Tax Code

401(k) Plans Financial Planning PEPs Regulatory Updates

Key Takeaways

  • Cannabis businesses in California, Colorado, Hawaii, Maryland, Massachusetts, Maine, Minnesota, Missouri, New Mexico, New York, Oregon, Vermont, and Virginia can deduct their 401(k) plan expenses from their business' taxes
  • A Pooled Employer Plan (PEP) protects the identity and assets for both owners of cannabis businesses and their employees
  • The safest and smartest way for cannabis businesses to achieve the same financial stability that other folks receive through traditional financial resources is through a PEP, with access to financial and investment advisory

We heard through the grapevine, that the cannabis industry was struggling the last few quarters. We, as well as Bloomberg, were happy to see that "Dry January" helped alleviate some of that cash-flow stress:

Which got us thinking about our partners Paragon Payroll, Inc. and how we can communicate some likely needed financial tidbits, to help alleviate at least the tax burden for these businesses.

Being that we are technically not tax experts (that's why we partner with Paragon Payroll, Inc., duh) we also enlisted some help from Armanino LLP's online resource:

As the scheduling of marijuana is a hot topic in the finance and accounting realms right now, it would benefit some of our followers to know that Colorado was the first state to decouple/ exclude IRC 280E in 2014, which prohibited cannabis businesses from deducting usual business expenses from their federal tax bill.

Yes, cannabis businesses that don't receive federal aid, cannot transport over state lines, etc., because they are not federally legal, still have to pay a federal tax bill. Cannabis businesses already pay taxes on NEARLY 70% of their gross profits if they cannot deduct usual business expenses... Too bad there is not a harbor in Colorado to throw metaphorical tea into.

Multiple states with legal cannabis followed in Colorado's footsteps excluding IRC 280E, and also have a small business retirement plan mandate/ state program in place, including: California, Hawaii, Maryland, Massachusetts, Maine, Minnesota, Missouri, New Mexico, New York, Oregon, Vermont, and Virginia.

All of this to say, cannabis businesses in the states above can deduct their usual plan expenses and employer contributions to their company's 401(k) plan. Even more importantly, they can utilize a conventional private investment account that is separate and vested according to their specifications (AKA the government cannot and should not have any ability to get a hold of the assets or personal information about the account).

How is this accomplished? Because of the structuring of a Pooled Employer 401(k) Plan (PEP). Ask us, or our partners Paragon Payroll, Inc., to see about starting a plan for you and your cannabis business employees.

You deserve a dignified retirement as much as the next blue and white collar worker, despite what the federal tax code or TikTok says.

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