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Cannabis accounting deals with the unique taxes of the industry. Aside from the basic federal and state income taxes, it's important to have someone specializing in cannabis accounting to help guide you through what deductions you can and should be taking advantage of for your taxes.
If you don't file your taxes properly, you run the risk of going to court. Cannabis businesses that are audited may be lucky enough to settle outside of court. Still, either way, you will cost your company much more than you would have to hire an accountant that specializes in the industry to help file your taxes.
In this article, we'll cover 6 tips to help you decode cannabis accounting so your business can be compliant and get the best tax deductions available.
Recently, we spoke with Naomi Granger on the Kaya Cast, KayaPush's podcast. As a tremendous leader in the cannabis industry today, Naomi comes from an accounting background over the last 15 years. Shifting her accounting expertise into the cannabis space, Naomi became the founder of the National Association of Cannabis Accounting and Tax Professionals (NATCAT).
In the KayaPush podcast, Decoding Cannabis Accounting with Naomi Granger, they covered all cannabis accounting, from tax deductions to industry standards to words of wisdom.
In this article we are going to share their insights with you in a nutshell, starting with how Naomi shifted into the cannabis sector, "... with cannabis and all the different verticals and all the different regulations and how all the states are so different, I knew that this was something that I can spend some time in really developed my craft and really learned something new."
She goes into detail about how crucial it is to have your accounting sorted, especially in the cannabis industry, "... it's the most confusing thing, but if you don't have your finances correct and if you're not compliant, then you're not gonna have a business. So it's important."
Thankfully, Naomi shared the wealth of her expertise by not only creating the NATCAT, which aims to standardize tax support, accounting, and bookkeeping for cannabis businesses but also with us.
Understand your taxes.
As a cannabis business leader, the first step to having your ducks in a row is understanding your various taxes. For example, you have federal and state income taxes that you file on an annual basis. In addition to these annual taxes, you will also have others, which may include:
- State sales taxes
- Excise taxes
- Local taxes
- Payroll taxes
- Unemployment taxes
Understand your deductions.
Once you've got an idea of your federal and state taxes, you need to learn about your deductions. Based on your location, your state may follow federal tax regulations. For the cannabis industry, this may inhibit your ability to file deductions.
Not surprisingly, understanding your taxes is critical to filing properly and avoiding any legal or monetary penalization.
"Number one, you need to have an accountant in place who understands this; who understands your state, and is making sure that you're taking the proper deductions where you need to take those deductions."
Have a specialized accountant and tax CPA.
While you can find one person who claims to be able to do it all, it's never recommended. The cannabis industry is so specialized, which means finding a separate account and tax CPA will only help when it comes to tax season for your business.
Know where to find the right people.
Understanding that you need specialized individuals working for your business is one thing. Finding them can be rather challenging. Thankfully, Naomi's business, NATCAT, is working to create a database of accountants that specialize in the cannabis industry.
"We're actually in the process of uploading our database of accountants publicly to the website. You can, as a business owner, come to our website and click through, you can see which accountants we actually have certified accountants…People who are relevant in the industry from insurance providers to tax attorneys, to you name it, our accountants are getting that type of training."
Ask questions.
When you've found potential accountants and tax professionals, it's important to ask follow up questions. Aside from taking basic training courses, what are they doing to stay up to date with the latest laws and regulations within the industry?
It's no secret the cannabis industry is dynamic. You need to find professionals that can keep up.
Have your SOPs in place.
Once you've hired your team, it's time to put some SOPs into place. For starters, you should have SOPs on the following:
- Cash management
- Inventory controls
- Daily cash logs
- Cash transport
"There's high risk for diversions of cash slipping into somebody's pockets and walking out the door, or product walking out the door and slipping into the black market. All those types of things are a huge risk for cannabis operators. And unfortunately, because of banking concerns and software concerns, cash is an issue."
Key take aways
The cannabis industry is evolving before our eyes. While we continue to see how different legalizations, including taxing, deductions, etc., are being handled on a federal level, it's also crucial to stay up to date on a local level. Hiring an accountant specializing in cannabis is your best bet to keep up with the times and protect your business simultaneously.
Thankfully, with emerging technology, like KayaPush, you can keep a close eye on your payroll, HR, scheduling, and time tracking all in one place. Make things that much easier to report back to your accountant come tax time!
