Tax Tip #240

Question: Can you name a business in which the IRS requires revenue to be reported BUT prohibits deductions from being claimed?



Answer: Operating a marijuana business. There is one exception. The cost of the marijuana itself is deductible. However, the IRS is closely monitoring legal marijuana companies for improper deductions on their returns. During audits, agents often disallow these deductions, and courts consistently uphold the IRS's stance. Some states, including NJ, NY, CA, PA and MA, have chosen to decouple from the IRS rule, allowing certain additional business-related deductions.