IRC 280E limits the expenses that can be taken as a deduction against income by a cannabis business to only Cost of Goods Sold.
Navigating the IRC 280E limitations can be a daunting task; if not properly understood the risk of paying too much tax, or being audited, is high.
Operating an Ancillary Business
Operating a parallel business to reclaim otherwise disallowed deductions is a tried and true way to circumvent the 280E limitations.
WARNING: Intent is everything, an ancillary business’s primary purpose must be to first generate revenue and NOT to avoid paying taxes.
Choose the Right Business Structure
Selecting the right Business Entity for your business is essential and by far the most effective way to mitigate your tax liability as well as keep your audit profile low.