Of all industries, the legal cannabis market in the US, especially in states like California, faces some of the most difficult tax and regulatory issues. Businesses that deal with cannabis are subject to strict regulations, high taxes, and frequent scrutiny from federal and state authorities. Because of this fact, tax consultants and attorneys play equally important roles, each with a unique but complementary function.
What Makes Cannabis Taxation So Complicated?
State and federal laws governing the cannabis industry conflict. The federal government still considers cannabis to be a Schedule I controlled substance, even though states like California have legalized it.
Because of IRS Code Section 280E, cannabis companies are unable to claim many common business deductions, which results in significantly higher effective tax rates than those of most other industries. It takes professional advice to navigate these regulations. The use of tax law firms in San Francisco or from other places can work as consultants for cannabis businesses.
What Role Does a Tax Consultant Play in the Cannabis Industry?
Tax consultants offer practical, hands-on assistance with compliance and financial planning. Among their responsibilities are:
- Establishing precise bookkeeping procedures
- Compute and submit payroll, excise, and sales taxes
- Offering guidance on cost accounting techniques to lawfully lower tax obligations
- Getting companies ready for tax authorities’ audits
Consultants assist companies in maintaining organization and compliance daily in an industry that is subject to frequent audits and changing regulations.
Why Can’t Cannabis Businesses Rely Solely on Tax Consultants?
Tax consultants are excellent at financial recordkeeping and compliance, but they are unable to offer legal defense or representation. Consultants have limited options if a cannabis company is involved in disputes with the IRS, the Franchise Tax Board (FTB), or the California Department of Tax and Fee Administration (CDTFA). Tax attorneys can help with that.
What Unique Value Do Tax Lawyers Provide?
The areas of work that tax lawyers practice include interpreting complicated tax standards, defending businesses as a result of lawsuits, and negotiating with tax authorities. Their role includes:
- Counseling of cannabis companies during IRS or state audits.
- Appealing an unjust tax determination.
- Organizing business operations against scrutiny by law.
- Consultancy about mergers, buy-outs, and changes of ownership in cannabis laws.
Having an understanding of the taxation laws, as well as the specifics of the cannabis industry a guarantees that evading the expensive legal traps to which businesses fall is avoided. Experienced IRS tax experts, including ( former IRS tax agent, a former auditor, and experienced IRS tax attorneys from San Jose) can help in such situations.
How Do Tax Consultants and Tax Lawyers Work Together?
A partnership between tax consulting organizations and tax counsel brings a multi-faceted defense mechanism against compliance as well as legal risks. Financial records are under the care of consultants who maintain them accurately and up to date, and it is through these records that lawyers establish their strong legal strategies in case of any dispute. They stand together to offer compliance proactively and defense reactively.
What Happens If Cannabis Businesses Ignore Professional Tax Support?
In the absence of professional advice, cannabis enterprises will be at risk of:
- Poor cost accounting leads to an increase in tax payments.
- Mishandling in the reporting of income or taxes leads to audits.
- Risk of lawsuits or suspension of business license.
- Unpreparedness for the IRS issues under Section 280E.
The effects may be disastrous – transforming an otherwise successful company into one laden with fines, lawsuits, or even closed down
