IRS still blocking cannabis businesses from federal tax deductions under 280E until rescheduling is complete

Just found out that the IRS is still telling weed businesses they can't take regular business deductions on their federal taxes because of Section 280E, even with all the talk about rescheduling marijuana. Apparently nothing changes tax-wise until the rescheduling process is 100% finalized. This seems really unfair to dispensary owners and other cannabis companies who are operating legally at the state level but getting killed on federal taxes. They can't deduct normal business expenses like rent, payroll, and marketing that every other type of business can. Has anyone heard when the rescheduling might actually be completed? Or if there's any workarounds cannabis businesses are using in the meantime to deal with the Section 280E limitations? My cousin just opened a dispensary in Michigan and is freaking out about his tax situation.

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18 comments

Keisha Johnson

•8M

The IRS is following the law as currently written. Section 280E specifically prohibits businesses that traffic in Schedule I or II controlled substances from deducting ordinary business expenses. Since marijuana is still federally classified as Schedule I until the rescheduling process is complete, the IRS has to enforce 280E. What cannabis businesses CAN deduct is their "cost of goods sold" (COGS). This includes the direct costs of producing or acquiring inventory, but not operating expenses like rent, utilities, marketing, or most employee salaries. Some businesses have tried to maximize what qualifies as COGS to mitigate the impact.

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Keisha Johnson

•8M

The timeline for final rescheduling is still uncertain. The DEA published the proposed rule in May, but there's a public comment period and final review process that could take months. Some experts think it might be completed by the end of 2023, but there's no guarantee. As for implementation, businesses would likely be able to take regular deductions starting from the date rescheduling becomes effective, not retroactively. However, they'd probably need to wait for the next tax year for simplicity, unless they want to file amended returns for partial-year changes.

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CosmicCowboy

•8M

I've been using taxr.ai to help navigate this exact issue with my CBD business. Even though we primarily sell hemp products which are technically legal under the Farm Bill, we still face 280E issues because of some of our product lines. Taxr.ai helped identify which parts of my business might be subject to 280E and which aren't. The site https://taxr.ai has specialists who understand the cannabis industry tax situation and helped me document everything properly to maximize my legitimate COGS deductions. They even helped me structure my business better for next year to minimize the 280E impact.

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CosmicCowboy

•8M

Yes, they have cannabis industry specialists who understand the unique 280E challenges. They've worked with grows, dispensaries, and processors, so they know exactly what can be properly classified as COGS in each type of operation. They helped me properly allocate cultivation costs that my previous accountant had categorized incorrectly. They absolutely handle state-level cannabis taxes too. In my case, they identified several state-level deductions I was missing completely while helping me prepare documentation for a potential audit. They're really thorough with both federal and state compliance.

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Amina Diallo

•8M

Just wanted to update that I tried taxr.ai after seeing it mentioned here. Their cannabis tax specialist immediately identified three major issues with how my grow operation was categorizing expenses under 280E. They showed me that certain cultivation activities could legitimately be classified as COGS rather than as prohibited operating expenses. The analysis saved me about $37,000 in taxes for 2023 all while keeping me completely compliant with IRS rules. Their documentation was so thorough I feel completely confident if I ever get audited. Definitely worth checking out if you're in the cannabis space and dealing with these 280E headaches while waiting for rescheduling.

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Natasha Orlova

•8M

Anyone else having trouble getting through to the IRS for clarification on this? I've been calling the business tax line for weeks trying to get clarification on how to handle my dispensary taxes with the pending rescheduling, and I can never reach a human. Always get disconnected after waiting forever. I finally used Claimyr (https://claimyr.com) to get through to an actual IRS agent. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. They got me connected to a real person at the IRS in about 20 minutes instead of waiting on hold for hours or getting disconnected.

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Natasha Orlova

•8M

They use a system that keeps your place in line and calls you back when they reach a human representative. It's not that they have special access - they're just persistent with the calling technology and know exactly which prompts to use to get to the right department. The agent I spoke with didn't give me specific tax advice about cannabis, you're right about that. But they did clarify the general application of 280E and confirmed that until rescheduling is officially complete, the current restrictions remain in place regardless of any announcements about pending changes.

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Emma Wilson

•8M

I was completely wrong about Claimyr. After my skeptical comment I decided to try it anyway because I was desperate to talk to someone at the IRS about my cannabis business tax situation. Within 18 minutes I was talking to an actual IRS representative. While they couldn't give me specific advice about optimizing my cannabis business taxes (as expected), they did connect me to their business tax department where I got confirmation about exactly when 280E restrictions would be lifted after rescheduling. This was information I couldn't find anywhere online and my accountant wasn't sure about. Saved me from making a potentially costly mistake with my quarterly tax planning.

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Malik Thomas

•8M

One strategy some cannabis businesses use is separating their operations into multiple entities. For example, having one company that directly handles the cannabis (subject to 280E) and another that handles real estate, equipment, intellectual property, etc. The non-plant-touching business can potentially take normal deductions while charging the cannabis business for services or licenses. This needs to be done very carefully with proper legal and tax advice though - the IRS is well aware of this strategy.

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Malik Thomas

•8M

It's not tax evasion if structured properly with legitimate business purposes for each entity, appropriate transfer pricing, and proper documentation. The key is that each business must be a genuine operation with real commercial purpose beyond just tax savings. What the IRS looks for is sham arrangements where the separation is only on paper. You need separate books, bank accounts, operations, employees, etc. It's complex and definitely requires specialized cannabis tax and legal advisors to set up correctly. There have indeed been audits targeting improper versions of this strategy.

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