Businessman inspects cannabis crop.

If you’re running a cannabis business in Maine, you’ve got some unique tax hurdles to jump due to federal and state laws. Let’s break down what this means for you, whether you’re thinking about starting up or you’re already in the thick of it, especially when it comes to deciding if your business should be an LLC (Limited Liability Company) or a Corporation.

The Tax Challenge for Cannabis Businesses

Asian man marijuana researcher checking marijuana cannabis plantation in cannabis farm, Business agricultural cannabis

Cannabis businesses face a tough tax rule known as Section 280E. This rule basically says that if your business touches cannabis, you can’t deduct the same business expenses as other types of businesses can when filing federal taxes. This has left cannabis businesses paying way more in taxes – to the tune of billions more than non-cannabis businesses.

A Silver Lining with Section 199A

Here’s some good news, though. The IRS recently hinted that cannabis businesses might be able to take advantage of a tax deduction called Section 199A. This could mean a 20% deduction on your business income if you’re set up as an LLC, which can make a big difference. But, it’s not as simple as just switching to an LLC and calling it a day. You’ll need to talk to a tax expert to see if your income qualifies for this deduction.

What If the Rules Change?

There’s chatter that the rules around cannabis could get a lot friendlier, specifically that the DEA might reclassify marijuana in a way that would lift the heavy tax burden Section 280E places on your business. But, we don’t know when or if that will happen. It’s a reminder to stay ready and flexible, and to have a plan for recalculating your taxes if these changes come through mid-year.

Looking Ahead

a farmer puts his marijuana plant into soil

Any tax breaks coming your way could mean more competition and big changes in how the cannabis industry operates. This could be great news, but it also means you’ll need to stay sharp and think about how to keep your edge in a changing market.

In short, running a cannabis business in Maine means keeping an eye on tax laws and being ready to adapt. Whether it’s taking advantage of new deductions or preparing for regulatory changes, it’s crucial to work with a tax professional who understands the unique challenges your business faces. This way, you can focus on growing your business while navigating the legal and tax complexities of the cannabis industry.

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