What to Look for When Choosing Your Cannabis Accountant
Your cannabis business is only as strong as the team that supports it
One of the key things your cannabis business needs to survive is a strong team of professionals and advisors on which you can rely. Think of it, like choosing an insurance plan, where the network your physician belongs to plays a major role in the care that you receive. When you select your cannabis accountant, it should be no different, make sure your professionals network is a source of strength. Our CPAs here at Cannabis Culture CPA, are members of a nation-wide network consisting of cannabis attorneys, financial institutions, and other industry advisors, so you can be sure that the challenges you face get answered by the best.
Many business owners participating in the cannabis industry happen to be serial entrepreneurs and and may already have an accountant they trust. But because the laws governing the accounting profession do not offer much protection to Certified Public Accountants’ (“CPA”) working in the cannabis industry, many skilled CPAs choose not to work with cannabis businesses, while others simply have not been properly trained or have spent the time required to develop the expertise necessary to serve your business well.
It’s important that when evaluating whether a certified public accountant is a good fit you should make sure the accountant has a strong grasp of IRC 280E, cannabis accounting, and understands the key tax court case rulings.
Here is one thing to keep in mind when selecting your cannabis accountant
Understand the Types of Accounting Professionals
It is helpful to understand the difference in the core skills of the CPA, the bookkeeper and the Enrolled Agent when making the decision to hire help.
A CPA is a Certified Public Accountant. To qualify as a CPA one must take a certain number of accounting related courses, pass a rigorous examination and be licensed in at least one state.
As CPA, who understands both the financial reporting requirements and tax planning strategies, I believe a CPA’s greatest strengths is our ability to be comprehensive. Our CPAs understand 280E, and because of our training can fuse together a blueprint of cannabis tax strategies and operational guidance that business benefit from.
Only a CPA may audit, review and give an opinion on a business’s financial statements. The CPA gives assurances (i.e., “certifies”) that financial statements may be relied upon by third parties such as a bank or a potential investor.
The role of the bookkeeper is to review all of a business’s transactions and assemble this information into useful financial information. Many businesses we work with often have an onsite person enter data, while our CPA review and perform monthly 280E adjustments.
Another category of accounting professional is the Enrolled Agent (“EA”). The EA may prepare tax returns and otherwise represent clients before the Internal Revenue Service. To qualify as an EA, a person must pass a comprehensive IRS exam or have experience working for the IRS.
Beware of professionals without a full understanding of legal entities for the cannabis industry
The selection of your legal entity is an important step in any business venture, but it is more so important for a business in the cannabis industry.
Selecting the wrong entity for a business in the cannabis industry can have dire consequences at tax time. The wrong entity selection can force a cannabis business to have a tax bill that is two times larger than what it would be if a different entity was selected.
The LLC, although selected by many cannabis businesses because of their simplicity to create and operate may actually not be the best entity structure when it comes to minimizing your taxes.
We recommend that your speak with a cannabis professional to receive feedback tailored to your situation.
The cost you pay for great advice may save you twice that amount in taxes.