I just finished re-reading the OLCC draft rules, and want to shed some light on the seed to sale tracking program that will be required for all marijuana licenses.
The system is called METRC, which is the same seed to sale tracking system used by Colorado. I've personally not had the opportunity to use this (and can't wait to get my hands on it). Here's an overview of the system:
So what are the other OLCC rules regarding seed to sale tracking? This is according to the draft rules, some of the bigger points:
More to come as I get the opportunity to play around with this software, hoping I can somehow by-pass the costs!
Our team has been busy these past couple of months ensuring that our clients stay compliant with all of their regulatory bodies. October is a super busy month for tax filings with the IRS and other regulatory bodies because corporate income tax extensions, quarterly sales tax payments and employment tax returns are due.
We've got some clients that are considered self-employed, so this post is dedicated to understanding your obligations if you're self-employed.
Who is considered self-employed?
The IRS defines self employed as carrying on a trade or business as a sole proprietor or an independent contractor (i.e. 10-99), you are a member of a partnership, or you are otherwise in business by yourself. This means that even if you are are an LLC you could be paying self-employment taxes.
So, what are your obligations for filing employment taxes with the IRS?
How much self employment tax should you pay?
Before knowing how much you should pay for SE tax, you first need to know how much you've made for your business by determining your net income or net loss. Once this amount is determined, here are the next steps:
Self employment taxes are definitely something to keep in mind throughout the year, you don't want to have a huge penalty or balance due at the end of the year. Any questions or comments? Leave them below!
I just got off a call with someone covering a story on 280E and the impact it has on canna-businesses, and I told him how Oregon's measure 91 law and House Bill 3400 were so far the best pieces of legislation for canna-businesses.
Section 71 of Measure 91 states that "Section 280E of the Internal Revenue Code does not apply for purposes of determining taxable income or loss under this chapter." This means that when filing a tax return in Oregon, you can add back all of the disallowed deductions from 280E.
This is huge success for canna-business in Oregon. I hope California and other states follow the same path as Oregon.
I've been in Oregon for the past two weeks, riding this wave of incredible energy with the October 1st date approaching. October 1st, 2015 is the first day that licensed medical dispensaries in Oregon can sell limited amounts of cannabis to adults, tax free. October 1st in the cannabis community in Portland, almost seems synonymous for New Years Eve or Halloween. I was leaving an interview (discussing cannabis and banking) and said to the host, "What are you doing on October 1st?" I myself will be meeting with some clients and going on a mini dispensary tour with my uncle from Dank Creative. I'm super excited to be part of Oregon history tomorrow.
Lately, our firm has been approached on the best legal entity selection to choose for a canna-business, especially with the legal recreational market opening up in Oregon. Really, there are so many variables in deciding the best entity selection for your business, which includes your forecasted revenues and profit for the next year, five years, etc; how many owners you will be working with; what type of investment funding you are looking for; and what is your overall growth and exit strategy. Depending on these factors, your entity selection could be very different. However, this post is focused on providing some insight on operating as an LLC.
What is an LLC?
The IRS defines as an LLC as a legal entity that "may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner."
Different LLC elections
First, If you decide to form an LLC, you will need to select which type of entity you will elect as.
There are several benefits of choosing an LLC as your legal entity for your canna-business. The biggest advantages are (1) limited liability to all members (good asset protection) all while (2) not paying double taxation (assuming you don't elect the C corporation).
Plus, if you're looking to have investors, LLC's don't have a restriction on the number of members, unlike S Corps, and can accept foreign investors. And, if you're planning to grow and not positive on how that might match your legal entity structure, you can always convert your LLC into a corporation (it's much harder to go from a corporation to an LLC).
Does my role in the industry impact my legal entity election?
It's a combination of your role, your growth (and exit) strategy, your assets, the number of members/owners, and your projected revenues that determine the best legal entity selection and legal entity structure. Once you've assessed all of these things with a lawyer and an accountant, you can definitely make the appropriate legal entity selection.
I was at a cannabis conference a few weeks ago and a panel was discussing how to pay growers. An older gentlemen said, “Well, you’ll just have to 10-99 him.” It was a step in the right direction, but unfortunately wasn’t 100% accurate. So what’s a 10-99 and who should get them?
So what is a 10-99?
Form 1099-MISC is required by the IRS if you are paying someone more than $600 that is not your employee and who is considered an independent contractor. Each individual that you are paying should receive a 10-99.
Who should get a 10-99?
Individuals such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, in which they offer their services are generally independent contractors according to the IRS.
Who doesn’t need a 10-99?
Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C- or S-Corporation do not require a 10-99 to be issue. Also, payments for merchandise, freight, storage, and similar items don’t require a 10-99. So if you’re selling product (i.e. a grower sells marijuana to a processor or wholesaler) you are not required to get a 10-99. Note: Payments to attorneys (even if they are considered a corporation, require a 10-99)
What’s the difference between a 10-99 and a W-9?
A W-9 and 10-99 go hand in hand. Imagine your business is hiring Joe, an independent, self-employed accountant for consulting work for the month; you’ll need to request he fill out a W-9 and provide him a 10-99 after you’ve paid him.
A W-9 is an informational return there you validate an individual/entities tax identification number (TIN) and payee’s correct name. You’ll use the W-9 to validate Joe’s name, TIN, and other required information. I recommend filing a W-9 for all vendors or suppliers you work with. This shows that you are performing a due-diligence on the businesses you work with.
A 10-99 MISC will be used to report the total amount you paid to Joe. You are also required to give him a copy of the 10-99. You will include his TIN, amount paid, and other requirement information. Joe will use this to file his personal taxes.
The best way to keep track of your vendor and supplier compliance is through a compliance tracker. This can easily be done in excel and updated each year. Remember, performing a due-diligence on your suppliers and vendors is definitely a business best practice.
Reminder: The due date for furnishing statements to recipients for Forms 1099 is February 16, 2016.
A recent ruling by the IRS (Beck vs. Commission) is an interesting one for the cannabis community.
A quick background on the story: It's 2007. Jason Beck had two dispensaries, one in West Hollywood and one in San Francisco. The DEA raided his West Hollywood dispensary in January 2007, and the collective was shut down for a week, but then reopened. Mr. Beck filed his taxes and claimed the DEA raid as Cost of Goods Sold when filing his 2007. He also claimed the raid as a loss on his tax return.
Mr. Beck was audited by the IRS, and the results of the audit showed he didn't really keep track of his sales receipts and inventory purchases (in fact he allegedly shredded inventory receipts and sales receipts before the IRS audit).
On August 10, 2015, the IRS ruled: The DEA Raid couldn't be claimed as Cost of Goods Sold because the marijuana was confiscated and not sold. Also, since Mr. Beck didn't keep accurate records and couldn't substantiate the loss he was claiming, the IRS wouldn't accept it.
The main take-away: Save your receipts and keep accurate books and records to substantiate your claims. With the current legislation, DEA raids are likely not to happen; however, local raids do. The IRS has ruled that confiscated marijuana can't be deducted, but this leads to greater questions to how to account for inventory shrinkage and write-offs.