Cost Segregation for the Cannabis Industry: Keep More of Your Money in Your Pocket
September 6, 2022
Cannabis conjures up an array of emotions in many people. It has become a very hot topic in the recent past, drawing passion from both sides. With many states legalizing cannabis for both medicinal and recreational use – it is shocking that it’s still not legal at the federal level.
With all of the controversy and stigma that still exists around cannabis, having an open discussion about your business can be daunting, to say the least. If you are involved in the cannabis industry, you know that there are strict rules every step of the way from growing to manufacturing, dispensing, and even marketing.
That being said, there are significant incentives for those in the industry. Similar to any other agriculture, manufacturing, or retail business – tax incentives exist that can return cash to your pocket. Running a business is a challenging endeavor, especially in the early years. A cash infusion that can be reinvested in your growth is worth exploring.
What is Cost Segregation
Cost segregation is the reclassification of building components and assets into their shortest allowable class life. This strategy front-loads depreciation and offsets tax liability giving you extra cash when you need it the most. Engineering-based Cost Segregation Studies should always be performed by an experienced and credible firm. Much like the cannabis industry, corporate taxes are complicated and often sticky – you want to be sure you trust the people handling your finances.
A Cost Segregation Study involves a multi-step process including a physical inspection of the building and all related assets, and calculations which are prepared and presented in the form of a report. This report is delivered to the client and their tax preparer. These reclassified amounts are included in the annual tax return to realize the savings. It is worth noting that your cost segregation provider should offer complete audit protection in the unlikely event that you find yourself under additional tax scrutiny.
Consider Cost Segregation for your Cannabis Business
So why the focus on cannabis – what makes this industry so unique? Between the retail, agricultural, and manufacturing activities associated with cannabis, there is an abundance of specialty lighting and equipment. The majority of components that fall into the “specialty” category can be reclassified into class lives as short as 5 years. This alone makes the cannabis business an ideal candidate for Cost Segregation.
Outside of those reasons, anyone who owns commercial property should consider a cost segregation study. Overlooking this tax strategy means leaving money (your money) on the table. If you own your cannabis facility in a separate LLC from your operating company, your tax preparer may be able to file a Grouping Election to help take maximum advantage of a cost segregation study.
It will be Challenging, but also Rewarding
If you’re still reading this article, you are likely in the business of cannabis, so we don’t need to tell you how complicated the subject matter is. The industry is rapidly gaining momentum and becoming more widely accepted. Laws around the growing, manufacturing, and distribution of cannabis are constantly changing. But even with all the forward progress, it is still a very gray area – especially when you combine it with taxes.
What we can tell you is that we are incredibly experienced in tax law and we have taken the time to understand your industry. With Veritax Advisors as your trusted specialty tax advisor, you can rest assured that you are in good hands. We guarantee excellent results, will defend you in the unlikely event of an audit, and will strictly adhere to all local and federal laws.
For more information or to chat about your property reach out to Chris, founder, and licensed CPA, today.
The Inflation Reduction Act of 2022 becomes Law with Sweeping Changes affecting Specialty Tax Incentives
The Federal-Level R&D Tax Credit Program remains a top priority on the Hill
The IRS Issues New Administrative Authority Governing the I.R.C. § 179D deduction for Building Envelope Efficiency
Start by scheduling a meeting for a free consultation. Let’s talk about the specialty tax programs that can equate to significant savings.