Getting clear about your finances isn’t something you should leave up to chance. You need to start planning out your chart of accounts and identify the key categories. The categories aren’t going to be the same for all dispensaries since many have different financial transactions. You may have different categories that represent the financial status of your business. These are the basic foundations of what a dispensary chart of account consists of to organize all your financial records.
Expert Tips for Accessing Capital in the Cannabis Industry
Businesses not subject to Section 280E typically deduct operating expenses too, but because cannabis is still a Schedule I controlled substance, you lose the benefit of cannabis accounting deducting traditional business expenses. This makes accurate classification of expenses in your chart of accounts essential to minimizing your tax liability. In addition to sales taxes, companies in the cannabis industry are also required to pay excise duties.
How To Build A Dispensary Chart Of Accounts
A cannabis Chart of Accounts (COA) can help plant-touching businesses ensure accurate accounting by tracking COGS and providing a clear picture of the revenues earned and expenses incurred. Some states like Colorado, California and Washington offer tax guidance for cannabis businesses. Though there are still states that prohibit cannabis use, both licensed and unlicensed marijuana businesses are expected to grow, and more states are expected to legalize cannabis.
Utilize Specialized Software
Besides the IRC 280E, there are other tax requirements that cannabis businesses must fulfill to maintain their license and stay out of trouble with the IRS. Keep the details of sales, cost of sales and inventory in the tracking and point-of-sale systems and archive monthly. Use your primary accounting system as the general ledger only for sales, cost of sales and inventory. From your business experiences prior to marijuana, you are likely familiar with a variety of accounting systems.
Exceptions to Section 280E Deductions
The benefit of this is maintaining organization and ensuring you don’t Accounting for Churches miss any recording of financial data. When you organize your financial categories into a COA, you minimize the risks of getting fined by tax authorities since you can keep track of all financial movements in the business. Creating a practical and manageable COA requires a balance between detail and simplicity.
- Even if your cannabis business is operating in a legal recreational or medical state, Section 280E still applies to your business, as trafficking cannabis is still in violation of current federal law.
- You must file this form within 15 days after you receive the payment, so it’s essential to be diligent about this reporting requirement.
- To further guide you through business expense deductions, we cover information like Section 280E, who in the cannabis industry pays taxes, what you can and can’t deduct and how to protect your business against audits.
- Typically, C-corporations are recommended for businesses in the marijuana industry opposed to LLCs.
Indirect Costs
• Cannabis Accounting Education and Training—Provides seminars, workshops, whitepapers, and templates guiding bookkeeping professionals and business owners in operating their cannabis businesses compliantly. Once a proper accounting system is set up with organized bookkeeping practices, cannabis companies can be at ease paying the correct sales tax they are supposed to. Next, ensure your accounting team has set up separate QuickBooks files for each legal entity. If you want to be able to prepare combined financials using the accounting software, you will need to use QuickBooks Enterprise instead of QuickBooks Pro or QuickBooks Online. Each legal entity needs to stand alone, exactly as if each were a totally separate and independent company.
Cannabis Accounting: Cannabis Business Chart of Accounts
Accurate scanning records and transparent accounting procedures are what a cannabis business needs to track its finance and enhance its credibility with financial institutions and potential investors. Get your accounting system set up to organize and control your expenses, including tracking annual revenue, before opening your doors. Cannabis businesses and accountants working in the industry do not often talk about seed-to-sale tracking with much enthusiasm. Cash-only businesses can be challenging to manage, and those in the cannabis business are no exception. Due to its illegal status at the federal level and as the business is growing fast with various emerging sub-industries, cannabis jobs and companies face more complex issues than ever. Shoeboxed is an expense & receipt tracking app that helps you get reimbursed quickly, maximize tax deductions, and reduce the hassle of doing accounting.
You can use time-tracking software to keep your detailed records of employees’ labor hours. Select software that is built specifically for cannabis entrepreneurs, complete with time-tracking and task management features and common cultivation activities like harvesting, transplanting, feeding and cloning. Record each employee’s job description in detail and review these descriptions regularly, in the event recording transactions that an employee’s responsibilities change. How an employee spends time at work can determine whether a medical marijuana business is able to deduct the costs as COGS or whether the activity is non-deductible. COGS are expenses that are necessary to extract, construct or acquire a physical product to be sold. CHAMP argued they should be permitted to deduct operating expenses related to production, along with services offered to the community that did not involve plant-touching.
