{"id":516,"date":"2018-10-07T17:33:28","date_gmt":"2018-10-07T17:33:28","guid":{"rendered":"https:\/\/tavasllc.com\/?p=516"},"modified":"2026-10-05T10:30:38","modified_gmt":"2026-10-05T15:30:38","slug":"deduct-non-marijuana-entity-business-expenses","status":"publish","type":"post","link":"https:\/\/legendcreative.com\/dev\/tavasllc\/deduct-non-marijuana-entity-business-expenses\/","title":{"rendered":"Deduct Non-Marijuana Entity Expenses"},"content":{"rendered":"

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Deduct Non-Marijuana Entity Business Expenses<\/h2>\n

Although \u00a7280E prohibits cannabis growers and retailers from claiming deductions \u201cfor any amount paid or incurred during the taxable year in carrying on any trade or business\u2026.\u201d, there are two common approaches to minimizing the impact of this harsh provision. First, taxpayers should seek to maximize Cost of Goods Sold (COGS) as deducting COGS is not prohibited by \u00a7280E. Secondly (and this is not an either\/or choice), cannabis companies can seek to maximize deductible business expenses by allocating expenses to a SEPARATE non-marijuana business.<\/span><\/p>\n

The second strategy is the more problematic approach for most cannabis companies as the IRS and the Tax Court has instituted a high threshold for what will constitute a separate (and non-cannabis) line of business. For cases where the seminal case in which the\u00a0taxpayer came out on top see Caregiving Californians Helping to Alleviate Med. Problems, Inc. v. Commissioner . For cases where the taxpayer lost, see Alterman, Laurel, et vir. v. Commissioner and Olive v. Commissioner . Despite the losses, the \u201csecond-line-of-business\u201d approach has not been foreclosed. The key remains providing sufficient evidence proving demonstrably separate activities and supporting the allocation of expenses.<\/span><\/p>\n

The evidence relies on issues of fact that depends on, among other things, the degree of economic interrelationship between the two activities. The facts must provide a reasonable basis of expenses attributable to that entity (this presumes the separate activities are conducted via separate legal entities which is strongly recommended).<\/span><\/p>\n

Non-Reasonable Basis<\/strong><\/span><\/p>\n