2 minute read
Happy Accounting: Tax Avoidance
from Munkey Biz Issue 19
by HAPPY MUNKEY
Paying taxes is one of the few certainties in life, for individuals and businesses alike. No one likes to pay up, but it’s a reality you have to face. Even businesses that deal with cannabis, which is still illegal on the federal level, need to pay them.
Many people and businesses often look for ways to reduce their overall tax burden. Tax avoidance and tax evasion come up as taxpayers look for ways around paying the government.
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While many use these terms interchangeably, they mean two entirely different things. Here’s what you need to know.
What Is Tax Avoidance?
Tax avoidance is the act of finding ways to minimize your total tax burden. According to the IRS, it’s legal. Numerous regulations enable individuals and businesses to take advantage of deductions, credits, and adjustments. Many of these options, such as 401(k) plans and retirement accounts, are also known as tax shelters.
Tax Avoidance Versus Tax Evasion
Where tax avoidance may be legal, tax evasion isn’t. Tax evasion is the failure to pay your taxes or deliberately pay less than what you owe. In many cases, people who evade taxes do so intentionally. In some cases, however, someone might commit evasion without even realizing it.
The Issues With Tax Avoidance
Tax avoidance may be legal, but it’s not always a good thing. There are plenty of ways to reduce your tax liability legally. In some cases, however, you might think you’re using a legal tax-avoidance tactic when the move is actually illegal.
Calling it tax avoidance doesn’t always make it legal. You need to ensure that every step you take follows the law, especially as a cannabis business.
Then there are ethical issues.
Tax avoidance may involve “bending the rules” a bit to your advantage. All businesses, including cannabis companies, are expected to pay what they owe according to the law. With avoidance, however, businesses have a bit of leeway to determine their actual taxable income. In this manner, some may view tax avoidance as immoral despite its legality.
Another issue with tax avoidance in the cannabis industry is that businesses tend to operate mainly with cash. While some might purposefully misreport their financial information, many businesses might make these mistakes unintentionally.
Whether it’s intentional or accidental, such mistakes can have dire consequences for your business. You could face legal action, heavy fines, and more. One of the best ways to avoid such problems — and ensure that every financial and tax-related step you take is legal — is to work with a qualified accountant versed in the state and federal regulations surrounding cannabis.
Keep Your Cannabis Business Compliant
Paying taxes is probably one of the least fun things about owning a cannabis business. Even so, they’re still essential to maintain compliance, keep your license, and avoid serious penalties — possibly even jail time. With an expert cannabis accountant, you can manage your accounting and file your taxes confidently, knowing you’re following all the laws. Contact My Cannabis Accountant today to learn more.
