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Cannabis business income tax

Cannibis.

A cannabis business files income tax returns just like other businesses. Differences may include deductions, credits, and unique payment and record keeping methods.

File your income tax return

Different business types have specific tax requirements. The business type (entity type) you choose impacts the types of deductions and credits you can take. For information on starting a business, different types of businesses, or on how to convert from not-for-profit to for-profit, go to Secretary of State.

Find out if you have an income tax return filing requirement for your business.

Select your business type

If your cannabis business is a sole proprietorship, you report business income and expenses using Federal Form Schedule C, Profit or Loss from Business.

Here are some specific details to help you file:

  • Expenses and deductions: You may deduct cost of goods sold. You may not deduct other business expenses, such as rent and wages. For more details, review Internal Revenue Code section 280E.
  • Credits: You may receive business tax credits if you meet the specific requirements for the particular credit.
Note: California does NOT allow Cannabis as a medical expense deduction, including medical deductions on Schedule A.

If your cannabis business is a partnership, you report business income and expenses using CA Form 565 or 568.

Here are some specific details to help you file:

  • Expenses and deductions: You may deduct cost of goods sold. You may not deduct other business expenses, such as rent and wages. For more details, review Internal Revenue Code section 280E.
  • Credits: You may receive business tax credits if you meet the specific requirements for the particular credit.

For more filing information, review Partnership and Limited Partnership, Limited Liability Partnership, or Limited Liability Limited Partnership.

Incorporated entities generally file a Form 100, California Corporation Franchise Tax or Income Tax Return. Cannabis cooperatives file Form 100 and are taxed like a corporation.

Here are some specific details to help you file:

  • Expenses and Deductions: If your cannabis business operates under California's corporation tax law, you can deduct cost of goods sold and ordinary and necessary business expenses.
  • Credits: Your cannabis business may receive business tax credits if it meets the specific requirements for the particular credit.

If your cannabis business is an S corporation or LLC electing to be taxed as a corporation, you report business income and expenses using CA Form 100 or 100S.

Here are some specific details to help you file:

  • Expenses and Deductions: For S corporation tax computing purposes, the S corporation can deduct cost of goods sold and ordinary and necessary business expenses.

    The Schedule K-1 that the S corporation provides to its shareholders should not include ordinary and necessary business expenses such as wages and rent. Those expenses are not deductible at the S corporation shareholder level because of Internal Revenue Code section 280E.

  • Credits: Your cannabis business may receive business tax credits if it meets the specific requirements for the particular credit.

Non-profit cannabis businesses are not eligible for California franchise or income tax exemption because they do not meet the operational requirements (Internal Revenue Code Section 501(c) or Revenue & Taxation Code 23701). These businesses must file as a taxable corporation.

Here are some specific details to help you file:

  • Expenses and Deductions: If your cannabis business operates under California's corporation tax law, you can deduct cost of goods sold and ordinary and necessary business expenses.
  • Credits: Your cannabis business may receive business tax credits if it meets the specific requirements for the particular credit.

You report income from your S corporation or partnership on your return. The K-1 you receive from your S corporation or partnership should not include non-deductible ordinary business expense items such as wages and rent.

  • Expenses and Deductions: You may deduct cost of goods sold reported to you on your K-1 by your S corporation or partnership. You may not deduct other business expenses, such as rent and wages. For more details, review Internal Revenue Code section 280E.
  • Credits: You may receive business tax credits if your S corporation or partnership meets the specific requirements for the particular credit.

More cannabis filing information

  • Principal business activity (PBA) code: Select the PBA code that most closely matches your business operations. To find your PBA code, review the instructions for federal Schedule C (Form 1040), line B.
  • Nonresident investors: Nonresidents that invest in California cannabis businesses may have to pay California income taxes (refer to FTB Publication 1100).

Pay taxes

To make a payment, go to Payment Options.

Cash payments: Generally, we do not accept cash payments for taxes. If you must pay in cash to avoid undue hardship, you can apply for an exemption.

Record keeping

We recognize that cannabis businesses face unique challenges, including keeping business records.

You must keep accurate and complete records to support your income and deductions for your income tax returns. This includes sales and purchase records, invoices, receipts, and other books related to your income and expense transactions.

For more information, visit keeping records.

Contact us

For questions about cannabis income taxes, email FTB Cannabis.

Cannabis business resources

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