Who Can You Trust?
Somewhere along the line, you made the difficult choice to become a part of the cannabis industry, which is fraught with risk of both criminal prosecution and excessive IRS scrutiny (read: disproportionate audit risk and huge tax rates).
While we cannot predict what the current administration will do, we have a pretty good idea of what path the IRS is taking and will continue to take with regard to the cannabis industry, and it runs right through Auditville. The challenge business owners face, among others, is finding a qualified — if not exceptional — tax professional to be on your team, someone you can trust with the dollars and cents of your business. But where can you find such an ally and how do you know if this person really is the professional that they claim to be? Here are a few tips to vet such a partner and to help you understand why it is so important.
Step 1: Educate Yourself!
I’m not suggesting that you go get a degree in accounting, but I am suggesting that you hit a Cliffs Notes version of a cannabis tax primer. Be at least a little familiar with Section 280E, why it’s important to you as a cannabis professional, and know what, if any, workarounds and/or strategic planning steps will put you in the best position possible.
Ask questions of your potential tax professional: Why do they think it’s important? What other landmines has the IRS planted in your fields next to your harvest? What changes can be made to minimize your tax burdens and give you the strongest defense if you are audited (which is extremely likely)?
If the answers sound too good to be true, they probably are. But if the suggestions make sense and take a guarded but protective stance for your business, you may be on the right track with the right person. The more you know, the more you can assess what this potential ally really does or does not know.
Step 2: Do Your Due Diligence
There are bookkeepers, accountants and CPAs who will represent themselves as “experts” in the cannabis accounting field. They may even include specific cannabis-related terms in their business titles to lead you to believe they know exactly what they are talking about. Do not take any “expert” at face value! Check, double-check and triple-check. I have seen and heard some of these “pros” disseminate bad, false and potentially illegal advice when discussing the specific challenges faced by businesses in the cannabis industry; it was unsettling and frankly, a little scary.
If someone has been in their field for only a few short years, they probably aren’t experts. They probably don’t have the experience or the foundation to understand the financial challenges you face, and they certainly cannot offer sound advice on how to deal with them.
Check their background: How long have they been a bookkeeper, accountant or CPA? Do they have other clients who would recommend them that you may contact directly? What specific training or experiences have they had in the cannabis industry that allows them to offer something more than H&R Block? Don’t be sold on a smile and script. Push them a little outside their comfort zone until you are comfortable in yours. Remember, their mistakes and shortcomings impact your bottom line.
Step 3: Get a Second Opinion
Once you choose someone to take care of the books and/or taxes for your business, I suggest that you take a sampling of their completed work to someone for review. There are teams of professionals out there who would be happy to give a review or a critique of the preliminary work done by your new, trusted ally. Give them a call, vet them and ask what it would take for them to review a few spreadsheets or tax returns and provide their input.
This will help you find shortcomings early enough in your new relationship where your exposure is low and ability to adjust high. It will also reassure you when that review comes back with a clean bill of health. You do this with your personal health; there is no reason not do to it for your business health as well.
If you’ve made it this far, you are to be commended. Most people don’t like to think about, let alone read about, bookkeeping and taxes. But you have chosen a field that requires you to be more diligent, more aware of areas outside your immediate field of expertise and more protective of the people you embrace as partners, helpers and allies. Take the time, do the work and set yourself up to win.
The time and energy you spend in vetting and confirming your choice will pay dividends as your business grows and prospers.
Elizabeth Sheldon is supervising attorney at Tax Defense Partners (cannabistaxrelief.com). She started her career in criminal law in 1993. In 1996, she began working with the cannabis industry by offering free seminars in San Francisco dispensaries for the benefit of patients and dispensary owners. After receiving her advanced degree in tax law, she focused on the unique challenges the industry has regarding taxation.