What Is 280E Compliance?

In order to run a successful business in the cannabis industry, organizations need to ensure compliance with 280E requirements. Cannabis businesses that use modern time and labor management software often experience a much lighter administrative burden when it comes to such compliance.

Here is everything you should know about timekeeping and 280E compliance:

What is 280E Compliance?

Section 280E of the Internal Revenue Code (IRC) disallows businesses that traffic in controlled substances from deducting ordinary and necessary business expenses. This includes businesses that operate in the cannabis industry, even though cannabis is legal for medical or recreational use in many states.

One of the biggest challenges for cannabis businesses is identifying and tracking all of the eligible deductions that they are allowed to take under Section 280E. A timekeeping system can help cannabis businesses to do this by tracking employee hours to specific job tasks, ensuring accurate timekeeping.

How Do Dispensaries Pay Federal Taxes?

By using timekeeping software, from a cannabis payroll company, organizations can keep better track of their 280E tax compliance.

For example, a cannabis business may be able to deduct the cost of employee salaries for employees who are directly involved in the production and sale of cannabis, such as growers, trimmers, and budtenders. However, the cannabis business may not be able to deduct the cost of employee salaries for employees who are not directly involved in the production and sale of cannabis, such as administrative staff.

Tax Planning and Preparation

A timekeeping system can also help cannabis businesses with tax planning and preparation. By tracking employee hours to specific job tasks, cannabis businesses can get a better understanding of their overall labor costs. This information can be used to develop tax planning strategies to reduce the company's overall tax burden. Additionally, the timekeeping system can be used to generate reports that can be used to support the company's tax return.

IRS Audits

The IRS may audit cannabis businesses to ensure that they are complying with all applicable laws and regulations, including Section 280E.

A timekeeping system can help cannabis businesses to demonstrate compliance by providing accurate records of employee hours to job tasks. This can help cannabis businesses to avoid costly penalties and interest charges.

Real-Life Examples

Here are some specific examples of how a timekeeping system can help cannabis companies with 280E:

• A cannabis dispensary can use a timekeeping system to track the hours that each employee spends on different tasks, such as budtending, stocking shelves, and cleaning. The dispensary can then use this information to deduct the cost of employee salaries for employees who are directly involved in the production and sale of cannabis.
• A cannabis cultivation facility can use a timekeeping system to track the hours that each employee spends on different tasks, such as growing, trimming, and harvesting cannabis plants. The cultivation facility can then use this information to deduct the cost of employee salaries for employees who are directly involved in the production and sale of cannabis.
• A cannabis manufacturing company can use a timekeeping system to track the hours that each employee spends on different tasks, such as extracting THC and CBD oil, manufacturing edibles, and packaging products. The manufacturing company can then use this information to deduct the cost of employee salaries for employees who are directly involved in the production and sale of cannabis.

Find a 280E Management Company

If you are a cannabis business owner, using a timekeeping system to track employee hours to job tasks  can help you to save money on taxes, improve your profitability, and demonstrate compliance with Section 280E. To learn more about how our cannabis payroll and HR solutions can help your organization, take a look at our Cannabis HCM Solution Guide below.

Or, if you have any questions about how a timekeeping system can help your cannabis business with 280E, please contact PayNW today. We offer a variety of timekeeping solutions that can be tailored to meet the specific needs of your business.