R&D Tax Credit: A Viable Option to Reduce Tax Burdens?


<![CDATA[Licensed cannabis companies pay more than their fair share of taxes thanks to the business deduction restrictions placed on them by IRS Tax Code Section 280E. That tax law prevents cannabis producers from taking any deduction or credit unrelated to the cost of goods sold (COGS). With some well-thought-out corporate structure, however, cannabis cultivators can find ways to reduce their overall tax burden.The Research and Development (R&D) Tax Credit is one such vehicle that potentially is available to cultivators, according to Jonathan Storper and Daren Shaver, attorneys with California-based Hanson Bridgett.“What the R&D credit is designed to do is reward innovation and problem-solving. And there’s really no industry limitation,” Shaver tells Cannabis Business Times and Hemp Grower. “Any business that is eliminating technical uncertainty in the development of products or experimenting and relying on science to really develop a product [is] a very good candidate for an R&D credit.”Expenses relating to breeding programs, equipment modification and/or design, and developing novel or innovative consumer products can all be used to apply for an R&D tax credit, the attorneys say, as long as the corporate structure separates the plant-touching business from the R&D business. “The corporate structure is extremely important in this kind of thing,” Storper stresses.Having multiple corporate entities is not new to the cannabis industry and is highly common in other industries. For example, some cannabis companies have created separate corporate entities under which real estate assets are held. That real estate company, which leases the property to the cultivation operation, can then take deductions (as it is a federally legal business) that would not have been available if the cultivation operation held those assets. Thus, that structure lowers the overall tax burden for the cultivation business. The same idea applies to the R&D credit, the attorneys say.“The better approach for…

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Source : R&D Tax Credit: A Viable Option to Reduce Tax Burdens?

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