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What deductions can I take for my marijuana (cannabis) business?

SOLVEDby TurboTax10Updated March 15, 2022

The only deduction a marijuana-related business can take is for the direct cost of goods sold, meaning that you may only deduct the cost of seeds or plants directly related to cannabis production. Any overhead or other costs indirectly associated with producing inventory for sale can’t be deducted.

Although marijuana (cannabis) is legal in many states, it’s still federally classified as a Schedule I controlled substance, and selling this substance is currently considered an illegal activity by the federal government. As such, marijuana-related businesses are restricted under IRC 280E of the federal tax code. Under these restrictions, even if a dispensary or other marijuana business is licensed by the state, it isn’t eligible for any business deductions except for the one mentioned above.

On the other hand, income from a marijuana-related business is taxed just like any other business income, and these businesses must still withhold and pay employment taxes.

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