When it comes to the finances of a cannabis business, managing your money properly and safely can be a slippery slope. Dealing in all cash presents unique situations where having a trustworthy accounting team can make all the difference. Being a cash-only business does not absolve you from reporting income and following relevant, local tax laws.
In order to stay in line and avoid an audit, your accounting needs to be properly organized from the very start. A regular accountant might be know as much as one specifically versed in the unique cannabis tax laws. The accountants at Industry Source Consulting (INSO) are expertly trained to work within the cannabis industry. We help you endure the least amount of tax burden possible while still operating 100 percent by the books. Our goal is to set you up to avoid an audit from the IRS. An audit can shut down operations for weeks at a time and have a significant impact on your profits.
Establishing the right practices to keep track of income and payouts ensures you can demonstrate compliance with relevant tax law should an auditor come around asking.
Regardless of how customers are paying, every transaction in a business must get recorded. All income must be reported to the IRS and taxes must be paid on that income. Cash is no exception, and business who don’t report cash sales often get caught, audited, and charged serious fines. The IRS is watching for abnormalities in businesses finances, and if they think it’s due to cash sales going unreported, they’re coming to check.
Avoid this issue with a careful procedure to track every transaction. Without a credit card trail, a voucher or cash receipt pad is one way to maintain accurate records. These are easy to come by at your local office supply store. INSO has also seen a variety of strategies in this area put to the test. They’ll share their best practices with you to help come up with a system of record keeping that works for you.
When you report your income to the IRS, remember that your deductions, as a cannabis business are different. You cannot deduct rent, wages, and other expenses on your taxes. This often makes your marginal tax rate higher than most other businesses. Differences like this are good to take note of and plan for before preparing your first year’s taxes, and INSO will make sure you’re in the “the know.”
As a cash-only business it makes sense you’d pay employees and contractors in cash. It may feel a little strange to do this, but it’s perfectly legal. The trick is, like regular transactions, payroll must be recorded. Adding a secondary system to track payroll is essential, but not just because it protects your business. While it does that, it also ensures your employees get accurate social security benefits when they retire. Not reporting payroll means employees won’t receive the full benefits they’ve earned over the course of their career.
While it requires some unique procedures and maybe special cannabis accounting services, working as an all-cash business is a doable thing. The secret to success is meticulous tracking of your money — what comes in and what goes out — to avoid being singled out by the IRS. The accountants at INSO are uniquely qualified to help throughout this process. Our knowledge in cannabis tax law, tax preparation, and cash-tracking procedures can serve as an invaluable resource to you as you get your cannabis business off the ground. In addition to protecting you from the IRS, we offer end-to-end services to support you in property acquisition and equipment procurement, with consulting in marketing, operations, and legal issues. Contact us today to learn more about how INSO can help your business succeed.
Most states institute standard sales tax laws where the retailer collects the taxes from each customer, holds the money on the government’s behalf, and then reports it and pays it at tax time. Simple enough, yet it’s estimated that in California, for example, only 25 percent of the state’s cannabis companies are tax compliant. Getting caught can lead to hefty fines and stoppage of business during an invasive audit.
Confusion over whether or not your compliant in tax withholding and reporting may result from the fact that cannabis companies often face three different sales taxes rather than the typical two. Cannabis businesses must collect:
ISNO accountants are fully aware of the right sales taxes to collect, and will work with you to ensure proper collection, reporting, and payment to the government at tax time.