June 2024 Declaration Keeps Marijuana Businesses Under Strict Tax Rules: No Business Deductions for 2025 Tax Season
On June 28, 2024, the IRS reaffirmed that marijuana remains a Schedule I controlled substance, reminding cannabis businesses that they cannot claim standard business tax deductions. This announcement reinforces the restrictions under IRC Section 280E, setting the stage for how cannabis companies must file their taxes for the 2025 tax season.
Despite state-level legalization and talks of rescheduling marijuana federally, these businesses will continue facing significant tax challenges.
Impact of IRS June 2024 Declaration on 2025 Taxes
The IRS made it clear that until federal rescheduling is officially implemented, cannabis companies will be subject to the same tax restrictions they have faced for years.
Under Section 280E, cannabis businesses:
- Cannot deduct payroll, rent, marketing, or other operational expenses
- Can only deduct the Cost of Goods Sold (COGS)
What This Means for 2025 Filings:
- Cannabis companies will still face higher tax burdens than other industries.
- Refund claims based on anticipated rescheduling are likely invalid.
- Businesses filing for retroactive tax relief for expenses incurred prior to 2025 should not expect success.
Biden Administration’s Rescheduling Plans
The Biden administration had signaled intentions to reschedule marijuana to a lower-risk category, which would unlock tax breaks for cannabis businesses. However, until a final federal rule is published, the IRS emphasized that marijuana remains a Schedule I drug.
“The law with respect to the schedule or classification of marijuana has not changed,” the IRS stated in its June 2024 notice.
Are Refund Claims Still Worth It?
Despite the IRS’s stance, some large cannabis companies are aggressively pursuing tax refunds, arguing that Section 280E shouldn’t apply to their operations.
Tax Planning Tips for Cannabis Businesses in 2025
To navigate the complexities of cannabis taxation, companies should:
1. Focus on COGS:
Meticulously track and calculate your Cost of Goods Sold to legally reduce taxable income.
2. Seek Professional Advice:
Hire a CPA or tax expert familiar with cannabis tax laws to avoid costly errors.
3. Stay Updated on Federal Rescheduling:
Monitor federal developments for changes that may impact deductions in the future.
4. File Refund Claims Cautiously:
Be prepared for IRS challenges if you file for tax refunds based on Section 280E disputes.
What’s Next?
The IRS’s June 2024 declaration underscores the ongoing challenges for cannabis businesses. Until marijuana is officially rescheduled, companies must adhere to Section 280E restrictions when filing for the 2025 tax season.
Staying informed and working with knowledgeable tax professionals will be crucial as the industry navigates this uncertain tax landscape.
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