Even though avoiding Insurance Accounting a net loss is a strong goal for any new or struggling company, remind your clients that they can be successful even without high net income. If your small business clients are using spreadsheets to manage their accounts, they could be spending far more time than they need to on their day-to-day admin. Clients who maintain digital records can streamline their processes and gain a better understanding of their business finances than those who don’t. How easily clients will adapt to this new way of working may depend on the software they’ll use. FreeAgent can provide your clients with a clearer picture of their business finances without any confusing jargon. Your clients can even take care of their business admin on the go with the FreeAgent mobile app.
Myth No. 4: Cannabis companies are a “goldmine” in terms of net income
Rock-solid accounting and cost accounting are the prerequisites for lowering net loss, which you can provide, immediately gross vs net increasing your value to their organization. In Cannabis, each vertical has its own set of complicated state and federal tax requirements and other accounting issues. Without a knowledgeable, specialized accountant at the helm, so many details would be ignored; it would only be a matter of time before the major headaches occur.
MTD for Income Tax confirmed for 2026
For example, by keeping their accounting records in order throughout the tax year, your clients can avoid having to rush to meet their filing deadlines. While some accountants and bookkeepers may view MTD for Income Tax and the shift from annual to quarterly filing as an increase to their workload, this won’t necessarily be the case. Many practices currently find themselves under a lot of pressure to get their clients’ accounts prepared for the Self Assessment deadline on 31st January each year. This may involve chasing clients for paperwork, digitalising their data and reconciling their transactions.
Myth 2. MTD for Income Tax will mean four times as much work for practices
This quantitative study investigated CPAs’ ethical perceptions of serving the cannabis industry in Colorado and Washington, the two states with the most mature cannabis laws and industries. All participants were asked what banking and cash handling issues were unique to the cannabis industry. Ten participants expressed knowledge that most banks will not serve the industry and that those that do charge high fees. Eight participants acknowledged security issues related to having a cash-intensive business. Seven of ten CRBs indicated they had cannabis accounting accounts closed at multiple banks and had to find new ones. Four CRBs in remote areas often had to transport cash long distances to a bank that would give them an account.
Seven out of ten CRB participants and ten of the thirteen Certified Public Accountant participants indicated that extensive industry knowledge is needed for an accountant to competently provide services to a CRB. The Certified Public Accountant should remember that the nuances of accounting for the cannabis industry go beyond Tax Code Section 280E. For example, in newer cannabis states, the CRB may not be able to find a bank account.
Ep. 130: 3 Myths Cannabis Business Owners Believe About Accounting
There are many CPE courses available to Certified Public Accountants that are specific to the cannabis industry. The Certified Public Accountant should consult the AICPA, their state society of Certified Public Accountants, or look to more mature cannabis states for learning opportunities. For example, the Colorado Society of Certified Public Accountants holds an annual symposium for Certified Public Accountants interested in the cannabis industry. In addition, the accountant may want to interview a Certified Public Accountant from a more mature state to get advice on how to competently proceed and minimize risk.
- Several municipalities and counties do not permit commercial cannabis activities, although cannabis is legal at the state level.
- The Colorado Department of Revenue publishes lists of licensed cannabis facilities on their state website.
- In addition, responses of CPAs in these two mature cannabis states might not be consistent with CPAs in states with less mature cannabis markets.
- Understanding the myths that business owners believe about Cannabis accounting can give you a leg up on understanding their perspective, and may better form how you pitch your value to them when you do reach out.
- Dr. Suzanne Owens-Ott is a licensed CPA in Colorado and is a Professor of Accounting at Colorado Mesa University.
- This is consistent with the firms of the 885 emailed survey requests; approximately, 17% went to regional, national, and Big Four firms while the majority went to small, local CPA firms.
Accounting professionals likely have a myriad of reasons for not servicing the cannabis industry. CPAs may be unwilling to provide the services due to conflicting federal and state regulations which would result in a violation of federal law and potential criminal charges. CPAs may also be unwilling to provide the services for fear of violating professional ethics codes and losing their professional permit to practice which could potentially reduce or eliminate the CPA’s ability to earn a living. Some CPAs or CPA firms may elect to decline the business because of an individual moral objection to participating in the cannabis industry. Lastly, some CPAs may choose to avoid the cannabis industry due to the extensive learning required to obtain the specialized knowledge required to serve the complex, cash-intensive, and high-risk industry efficiently and effectively.
Table 5 summarizes the responses when asked what professional accounting and tax services are most needed in the industry. CRB owners need to carefully consider the industry knowledge and experience of a potential Certified Public Accountant prior to engaging them. This study shows that US Certified Public Accountants should weigh the risk of federal prosecution and potential loss of the Certified Public Accountant license when deciding whether to serve a CRB client. Some of the data collected are demographic and are used to segment the analysis and yield context to other data collected (Polonsky and Waller 2005).
- A 2019 grounded theory qualitative study posed that CPAs remain largely hesitant to serve the cannabis industry primarily because they fear federal prosecution as long as cannabis remains on the DEA’s Schedule I Drug List.
- When interviewing a Certified Public Accountant to provide accounting and tax services, there are several characteristics or qualifications that a CRB should consider.
- Seven of ten CRBs indicated they had accounts closed at multiple banks and had to find new ones.
- CPAs remain largely unwilling to serve the cannabis industry primarily because CPAs fear federal prosecution as long as cannabis remains on the DEA’s Schedule I Drug Listing.
- Approximately 64% of these responses included the need for special tax training or training on Internal Revenue Code Section § 280E.
The primary theme from CRBs and Certified Public Accountants who are serving the industry was the need for accountants to have a thorough understanding of the industry and IRS Tax Code Section 280E. Internal controls are the activities that an organization takes to provide reasonable assurance that the company can meet its goals (Frazer 2016; Khairul et al. 2016). Failure to comply with state, local, or tax regulations can result in penalties, fines, and potential revocation of the cannabis license (Hunzicker 2018). Effective internal controls were missing in the Alterman v. Commissioner case in which a medical cannabis company failed to maintain adequate records and failed to understand how to comply with Tax Code Section 280E (Lee 2018). Due to complexities in accounting and regulation, cannabis businesses should be perpetually ready for a potential audit by regulators or the IRS (Hunzicker 2018). Certified Public Accountants can provide small businesses, including cannabis businesses, with guidance to develop and implement effective internal controls (Kapp and Heslop 2011).