Here at HeadQuest, we’ve compiled our favorite tips and tricks to get you through your least favorite time of year.
All of the fun winter holidays are over, and tax season is now upon us — the time of year when everyone frantically emails their accountants for council while trying to find crumpled receipts that have been stuffed in a drawer or fished from the garbage. We all deal with Uncle Sam, but smoke shop owners face unique challenges compared to everyone else. Here at HeadQuest, we’ve compiled our favorite tips and tricks to get you through your least favorite time of year.
Common Tax Mistakes
We all know that your business is special — a unique little angel that you love, nurture, and care for. But when it comes to taxes, you’re not as special as you think. Keeping income and expenses correctly categorized is a common issue that store owners have, and it can be time-consuming when you leave things until the end. Income from glassware sold should be separated from CBD sales and possibly other items, depending on your state’s tax code. Some states impose excise taxes on certain products such as tobacco, alcohol, or anything fun. Double-check with your state tax code how your products should be categorized. What makes sense to you may not reflect the tax code. Many people are probably using cash to buy some quick items for their funtime festivities, but it’s important to make sure you have your shit taken care of with a great POS (point-of-sale) system to capture all the cash action behind the counter. The last thing you want to do is give the IRS a reason to audit, and cash-heavy companies are easy marks for the IRS.
Don’t Overlook Deductions
Taxes are always going to be higher than we wish they were, but taking advantage of deductions is key to maximizing your income. Your inventory is probably your number one expense, which is why it’s important to capitalize on all the deductions you can make in this area. The Cost of Goods Sold (COGS) is simply how much you spend on your stock before a customer purchases it. This includes the cost of shipping and handling, labor to stock your shelves, et al. Other standard business expenses such as rent, utilities, insurance, and salaries are just as crucial to keep correct. This also includes trade shows, marketing campaigns, and a Wacky Waving Inflatable Arm-Flailing Tube-Man. If you decide to start working from home like most people wish they could, then be sure to take advantage of the tax credits for being a hard-working business person who will work from anywhere. The vehicle you use might have more tax discounts available to you if used for work. Basically, if something is used for work or to help sell your products, a tax deduction might be waiting to be realized.
Get the Record Straight
I know all of this can be daunting, but luckily technology has caught up with taxes. Consider using a digital bookkeeper to keep things in order. Tools like Quickbooks, Xero, and Intuit are great ways to update your bookkeeping. They help to maintain detailed records for sales, expenses, payments, and the number of books you own (I assume that’s part of bookkeeping). Since your bookkeeping is digital, it would be a good idea to have your organizational system match it. Create a system for documenting and digitizing your store receipts and invoices so they are easily found in one place. A cloud-based storage solution would be ideal if you’re looking to access your documents from anywhere and want to keep them secure for the future. Having an easy-to-use system will save you time and headaches during tax season and will act as a backup in case of an emergency. This storage system can also keep records of any business licenses, permits, or certifications you might need.
Head Shop Headaches
Depending on the scope of your store, you might have some special federal tax code rules that apply to you — specifically Section 280E of the federal tax code.
Section 280E disallows all deductions or credits for any amount paid or incurred in carrying on any trade or business that consists of illegally trafficking in a Schedule I or II controlled substance within the meaning of the federal Controlled Substances Act.
The IRS sent a friendly reminder (or as friendly as the IRS can be) on June 28th, 2024, that “marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code… Taxpayers seeking a refund of taxes paid related to Internal Revenue Code Section 280E by filing amended returns are not entitled to a refund or payment.”
Make sure you are taking steps to keep the headshop headache down and the good vibes going. Consider buying the services of a tax professional that knows the unique difficulties of running a store like yours. Hiring a professional can help find deductions you may have missed, ensure compliance with tax codes, and reduce the risk of audits. Conduct quarterly reviews year round to stay on top of your finances, and ensure your tax season runs smoothly.
Let’s Get It Started
As tax season approaches, keep in mind the ABCs of business — Always Be Keeping impeccable records so the IRS doesn’t audit your ass. Ok, that initialism failed, but the sentiment remains: Cover. Your. Ass. Do a little work every day to keep tax season from sneaking up on you. The last thing you need 5 days before 420 is a head shop headache.
