Being a dispensary of medical marijuana is a big deal in some states. But, recent reports show that this line of business will cost you.

 

The 1982 280E Reform provision was established to ban those who sell illegal substances from deducting related expenses on their federal taxes. This rule didn’t feel so bad back in the days of heavy drug dealers with yachts, million dollar homes, etc. Unfortunately, the 280E has put a heavy burden on the shops who dispenses the green cohiba. In the 18 states that has legalized the sell of marijuana, purveyors have seen an daunting increase in tax audits and their tax rates.

 

In some instances, owners have seen their tax rates jump form 50% to 75%.  The increase is due to the IRS not allowing them to claim everyday business expenses (i.e. rent, payroll, etc) on their taxes. The high rate has effected business owners in ways that they can’t even give their employees annual raises.

 

Jim Marty, an accountant in Colorado specializing in medicinal marijuana tax law, said he has one client that didn’t turn a profit in 2009, 2010 or 2011. In 2012, though, she was handed a $300,000 tax bill from the IRS for those three proceeding years.

 

Entrepreneurs whose businesses are legal under state laws are getting hammered by outdated federal tax rules.

 

“If you have a license from the state hanging on your wall, that doesn’t fit the definition of trafficking,” Marty said. “Yet the IRS is aggressively auditing this industry.”

 

He said he often sees clients facing effective tax bills of 65% to 75%. That compares to 15% to 30% for businesses in general.

 

What does the IRS have to say today? Nothing.  According to a letter sent to a congressman in 2011, the IRS stated that in order for them to change their practices, Congress will need to change the law if medical marijuana dealers do not want to be effected by the 280E provision.

 

 

 

 

Source: CNN Money