Cannabis Industrial Marketplace

Harley Sherman

Etz Chaim

Session Title: Legal Entity and Facility Design Options to Minimize Taxation

Time: Feb 26th, 1:00 PM
Location: Seminar Room #1

Professional Summary

About Harley Sherman

Harley Sherman provides quality, personalized financial accounting, tax and business consulting to the Cannabiz industry. Harley Sherman focuses on managing client tax risk. Harley Sherman meets this objective by ensuring the client benefits from all the allowed deductions while maintaining compliance with Section 280E and other relevant Federal, State, and Local regulations. Harley Sherman’s expertise includes: License application support, selection and implementation of appropriate accounting and reporting systems that seamlessly provide meaningful financial and tax information, financial statement preparation, and income tax planning and preparation.

Harley Sherman has provided CPA Attestation and other accounting services to more than 50 license applications, one of which, has received a Provisioning License from the State of Michigan.

He is often sought after to speak on Cannabis accounting and tax issues. He has spoken for MI Legalize, Wayne Community College District and the Michigan Cannabis Business Development Group.

Harley Sherman’s Mission

Harley Sherman’s mission is to provide clients with the knowledge required to make informed decisions. Harley Sherman stands with its clients from business startup to closeout. Harley Sherman recognizes that clients work hard to be successful, as such Harley Sherman provides guidance and answers questions throughout the years.

Harley Sherman allows clients to focus on what they do best. This saves clients time, money and headache.

Harley M. Sherman, CPA

Mr. Sherman is a 1992 graduate of Walsh College where he received his in Professional Accountancy. He is licensed to practice accounting in the State of Michigan. After receiving his CPA designation, Harley left public accounting to join a local consulting firm focusing on internal controls and operations. However, Harley has always provided accounting and income tax services. In May 2016, Harley started his own practice, bringing over 23 years of accounting and tax experience to his clients.

Session Abstract

Until the Federal Government removes Cannabis from the DEA Schedule system, selling / buying, etc. are still considering trafficking and illegal. The Cannabis Industry, although illegal in the eyes of the IRS, still has to pay income taxes. However, such businesses are limited in which deductions are allowed for tax purposes. Thus, the effective tax rate can be 70 percent or more. Further, income flowing to the owner’s personal tax return can be significant.

Proper planning, early on in the planning / formation stage, can help protect owners / investors from unexpected tax liabilities, maximize those expenditures that can be deducted from Gross Receipts, and help manage tax risk exposure. Two key planning considerations are Selecting the appropriate Tax Entity and Floor Plan / Layout.

Appropriate Tax Entity

While an entity can organize as an LLC or a Corporation at the State-level, In certain situations, the entity can opt to be taxed as an LLC, C Corporation, or Subchapter S Corporation. Each entity type has pros and cons including: ease and cost to start, reporting requirements, whether income flows to owners’ personal tax return, whether distributions are taxable, and the possibility that the owners’ ‘wages’ are tax deductible

Floor Plan / Layout and Other Plans

IRS Code Section 280E disallows deductions and credits for businesses ‘trafficking in Schedule 1 or Schedule 2 drugs. However, Cost of Goods Sold is an adjustment to Gross Receipts and is the only allowed reduction of income to get to taxable income.

IRS Code Section 471 defines COGS of Goods Sold.  To understand and maximize Cost of Goods Sold, we need to look at IRS Code section 471 and within the confines of that section figure ways to maximize Cost of Goods Sold.  Early planning should include: clearly allocate space to non-cannabis sales, owners work the business where COGS occur, employees punch clock for each department they work, separate POS for cannabis and non-cannabis. separate legal entities for cannabis and non-cannabis activities.