After the November 6, 2018 elections, 10 states now have legalized recreation marijuana use, and 31 states have legal medical marijuana.
Even though cannabis is still illegal on a federal level, income earned must still be reported on an individual and/or business tax return.
Matthew Price, a dispensary owner in Oregon learned the hard way. He was sentenced to seven months in prison for failing to file individual income tax returns from 2011 to 2014 and disclosing income earned from the dispensary operation.
Cannabis business owners also need to understand IRC Section 280E and how it affects these companies. The code section strictly prohibits the deduction of ordinary business expenses from gross income associated with the trafficking of Schedule 1 or Schedule II as defined by the Controlled Substances Act. So unlike other businesses, cannabis companies must pay taxes on the gross income alone.
