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Important Things to Know about Cannabis and Tax Reforms

cannabistaxattorneyDec 13, 2019, 6:37:03 PM

December 22, 2017 is a historical day, when PL-115-97 commonly known as “the act” or the tax cuts and jobs act got signed into law. Since 1986, this is arguably the US tax code’s most significant overhaul. Cannabis businesses therefore are supposed to be in the know on how these new tax laws affect their operations. Read on to discover some significant issues and how they impact cannabis businesses. Taxes and regulations, Section 280E in particular, can be confusing and a single loophole could result in violations and hefty fines. To avoid these, consider working with compliance and accounting experts who can give you a reliable 280e help so you can make better business decisions.

First, it is important to mention that IRC 280E never got repealed by the act. The most significant issue for the majority of cannabis businesses is arguably how IRC 280E impacts them. The delight of much of the cannabis industry, before the new tax law got enacted, some political advocates were at the forefront for IRC 280E’s repeal. A key reason behind this was the repeal not fitting into Congress’ budget. Congress would be forced to replace lost revenue if the repeal were budgeted as a tax cut. One cause for celebration for cannabis businesses is that the federal income tax they have to pay is significantly reduced.

C corporations are a very attractive option now thanks to the act. The lowering of tax rates takes centre stage in GOP tax reforms. The C corporation is a good option when determining your cannabis business’ legal structure. The corporate level is where C corporations are required by law to pay taxes from. Individual shareholders’ dividends then get subjected to up to 20% tax. C corporations were often not preferred by many people in the past due to such double taxation. The issue of double taxation gets mitigated by the act through reduction of the tax rate for C corporations to 21%. However, tax rates for individual shareholders’ dividends remain unchanged under the new law. Besides the reduction in tax rates, there are other benefits to see corporations for instance enhanced flexibility in providing employee benefits and shareholders getting audit protection. Due to change in the law, cannabis businesses are encouraged to review their operating structures at the moment and consider whether they should become a C corporation. Therefore be keen hire reputable compliance and accounting experts who can cannabis tax help services.

Following the new act, cannabis businesses now find passed through entities and limited liability companies less attractive. The most popular entity choice for people seeking to start businesses, cannabis or otherwise, is usually a limited liability company. For tax purposes, limited liability companies usually take on various forms however, the most common features are their incomes passing through to owners. When incomes get passed through to owners or individual members, they are subject to taxation at individual tax rates. Deductions of up to 20% on business income can be enjoyed by individual members owning passthrough entities, courtesy of the new law.

For more information, click here:https://en.wikipedia.org/wiki/Financial_accounting.