Legal Marijuana Faces a 75 Percent Tax Rate

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Dispensaries can't take the deductions other businesses do, so profits are going up in smoke for many.

A tax rule that’s been on the books since 1982 is making life difficult for businesses that sell medical marijuana in the 18 states where it’s legal, according to CNN Money.

The rule was added to keep drug traffickers from deducting the benefits of a life of crime on their taxes. One convicted guy managed to deduct his guns, bribes, and yacht as business expenses. The IRS said: Uh, no, that stops now.

And now it stops those who legally sell drugs from deducting legitimate, fairly typical business expenses, including rent and payroll. This pushes the effective tax rate for these companies much higher than most – up to 75 percent. It’s pushing some out of business and keeping others from hiring or giving employees raises. From CNN…

Jim Marty, an accountant in Colorado specializing in medicinal marijuana tax law, said he has one client that didn’t turn a profit in 2009, 2010 or 2011. In 2012, though, she was handed a $300,000 tax bill from the IRS for those three proceeding years.

Of course, marijuana opponents who lost the battle over legal status probably like it that way. But several groups are arguing the law is outdated and not relevant to this new “industry.” It may get changed – eventually.

Stacy Johnson

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