Earlier today, the Conference Com. approved five hundred and three (503) pages of amendments to the Internal Revenue Code. This should soon become law, with many provisions effective in sixteen days. Most important to our business:
Congress made zero (0) changes to Section 280E. Cannabis companies are still forbidden to make common business deductions, forcing them to pay tax on a sum closer to gross, not net, income. If there were a bright side, it would be this: one part of the cannabis business is very stable.
If you felt uncertainty about starting your cannabis business as a pass-through (LLC or S-Corp.) or a corporation, No-Change-to-280E means this law doesn’t change your calculus. All the old risks persist. Cannabis businesses still pay taxes on a bigger portion of revenue than tulip businesses. Calculating allowed deductions remains convoluted. Because of uncertainty with calculations and likelihood of audits, many cannabis businesses avoid pass-through entities to protect themselves from IRS penalties.
Reduced rate on corporate profits from 35% to 21%. The difference between those numbers is huge.
Creation of a new deduction that reduces taxable income derived from partnerships (LLCs & S-Corps). This is good for individual taxpayers, without regard to 280E.