medical marijuana clinic startup

[ron@taxplannersinc.com]

Does anyone have any updated information regarding the newly legalized (in some states) medical marijuana clinics. The 'rumor mill' has it that the IRS is not recognizing normal and customary business practices as this type of business is deemed an illegal activity, therefore, operators cannot take expenses.

Any help or advice is appreciated.

Ron Drake, EA
ron@taxplannersinc.com
702-497-4538 (cell)
702-734-7134 (office)

[David1980]

I stay away from them. While it's legal at the state level (for example in Washington where I live) it is not legal at the federal level. Still a controlled substance. For federal tax purposes deductions are limited due to Section 280E "Expenditures in connection with the illegal sale of drugs". There was also a memorandum from this year on the subject ILM 201504011.

Basically the only thing you can deduct is cost of goods sold. So what happens is the dispensary is going to try to claim as much as possible is actually cost of goods sold (assuming they don't want you to simply ignore Section 280E all together). Some things you might be able to capitalize into COGS. So the big thing will be researching what all you can justify including in COGS. Well, that, and determining if the client has any interest in all in filing a legitimate tax return.

I was approached once for doing taxes for this kind of business and that particular business wanted to simply ignore the law and claim all deductions like any other business because it's legal at the state level. They probably were consuming their own product if you ask me. I turned them down. They probably went down the street and found someone else to do it.