Interesting article on the tax impacts of various corporation types with relation to 280E

Business and Marketing
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What corporate structure did you end up using in your business?

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We normally recommend 2 revenue streams…
Example we have taken someone who owed 174,000 in Federal Taxes down to owning 40,000 on a dispensary in Northern Oregon .
Revenue gross was 980,000

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When we work with our new clients in start-up on the compliance side we always recommend “C” Corporation.

Keep in mind Cannabis businesses pay taxes on gross income. These businesses often pay tax rates that are 70% or higher.

So this is why C and COGs are important :slight_smile:

This is where i say, #dontworrywegothis when i talk about Proteus420 :slight_smile:

Dawne
Passion Pusher
Proteus420.com

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Absolutely right

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Hi Nicholas,

C-Corp here with LLC’s as subsidiaries for each project/location. That way equity shareholders hold stock in a subsidiary opposed to the entire corporation. Hope that makes sense.

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Are the LLC making a “check the box election” to be treated as corporations or disregarded entities? We have used LLC’s electing corporate status and then made S Corporation elections and QSSS subsidiary elections. We DO NOT favor C corporations even with the change in the tax law, and we won’t be able to make final recommendations until the regulations are initially issued in July for new Sec. 199A “pass thru” entity deductions.

If anyone has the interest, this is probably the most comprehensive article onIRC 280E for California we are aware of.

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Cannabis businesses DO NOT pay taxes on gross income. Keep in mind that under a licensing structure such as California’s with multiple types of licenses,

  • Cultivators are prohibited from transporting and distributing their products, so close to 100% of their costs are COGS.

  • Manufacturers doing extraction have a very complicated allocation scheme.

  • Distributors tend to be almost 100% captured by IRC Sec. 280E.

  • Transportation only distributors are arguably not even subject to IRC Sec. 280E, and

  • Dispensaries may have opportunities to do some rather aggressive planning.

There is a rather wide range of analysis and approaches that can be taken with IRC Sec. 280E…and that’s part of the reason that it is probably worth engaging with professional [think “CPA”] that actually knows the rules rather than accepting and repeating what “everyone else” seems to think the approach is. The only way to know is GRIND OUT the math,.

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I am not a Tax Preparer but i can take those 174 000 down to 1$ , maybe even to ask for refund .
But expect a phone call in near future from IRS lol
Everyone can take down just sit in front of TurboTax with cup of coffee and type random numbers , thats why big cannabis companies are losing all cases on court .
Then again its gonna be Carol fault … lol