Before you consult with a lawyer or hire a
consultant, you may want to do some of the work
yourself. One of your first decisions as a cannabis
growing biz owner is what form of biz you are going
to choose. This decision is very important because
it can affect how much you pay in taxes, the
amount of paperwork your cannabis growing biz is
required to do, the personal liability you face and
your ability to borrow money. cannabis growing biz
formation is controlled by the law of the state where
your cannabis growing biz is organized.
The most common forms of cannabis growing biz’s should be:
Corporations (C Corp)
Limited Liability Companies (LLC)
S (Sub chapter) Corporations (S Corp)
The two forms of cannabis growing biz’s should not be:
Sole Proprietorship
Partnerships
All cannabis growing biz's must file an annual return regardless
of biz form.
Of course, regardless of industry, the question "What structure makes the most
sense for my growing cannabis?" answer really is dependent on the individual
circumstances of each cannabis growing biz owner. LL C’s are a common
choice for small to mid size growers. You can even set up an LLC to pretend to
be a corporation which is a good approach for cannabis growing biz owners who
are disabled. Each cannabis growing biz owner must assess their own needs.
A sole proprietorship is the most common form of cannabis
growing biz industry. It's easy to form and offers complete
control to the owner. But as a cannabis growing biz owner, I
wouldn't want to also be personally liable for all financial
obligations, debts, and legal of the cannabis growing biz.
As a sole proprietor you can operate any kind of cannabis
growing biz as long as you are the only owner. It can be full-
time or part-time work. But it's only you. This includes
operating a:
Trade show cannabis growing biz
Home-based cannabis growing biz
One-person on-site consulting
Sole proprietors do not have taxes withheld from their
cannabis growing biz income so you may need to make
quarterly estimated tax payments. You generally have to
make estimated tax payments if you expect to owe tax
of $1,000 or more when you file your return. Use Form
1040-ES, Estimated Tax for Individuals, to figure and
pay your estimated tax.
Every sole proprietor is required to keep sufficient
records to comply with federal tax requirements
regarding cannabis growing biz records. Your net
cannabis growing biz income or loss is combined
with your other income (other income could be
your salary if you also work for someone else, or
your investments) and deductions and taxed at
individual rates on your personal tax return.
A partnership is the relationship existing between two or more
persons who join to carry on a trade of a cannabis growing biz.
Each person contributes money, property, labor or skill, and
expects to share in the profits and losses of the cannabis growing
biz.
Each partner reports his share of the partnership net profit or loss
on his personal tax return. Partners must report their share of
partnership income even if a distribution is not made.
Partners are not employees of the partnership and so
taxes are not withheld from any distributions. Like sole
proprietors, they generally need to make quarterly
estimated tax payments if they expect to make a profit.
Also just like sole proprietors, the cannabis growing biz
partners share personally liable for all financial obligations
and debts of the biz in general.
The corporation becomes an entity that handles the
responsibilities of the cannabis growing biz. Like a person, the
corporation can be taxed and can be held legally liable for its
actions. If you organize your cannabis growing biz as a
corporation, you are generally not personally liable for the
debts of the corporation. (Exceptions may exist under state
law.)
Note: You can also set up an LLC to be a corporation for this
purpose.
A corporate structure is more complex than other
cannabis growing biz structures. It requires
complying with more regulations and tax
requirements.
Corporations are formed under the laws of each
state and are subject to corporate income tax at the
federal and state level. In addition, any earnings
distributed to shareholders in the form of dividends
are taxed at the individual tax rates on their
personal annual tax returns.
LLCs are popular because, similar to a corporation,
owners have limited personal liability for the debts and
actions of the LLC. Other features of LL Cs are more
like a partnership, providing management flexibility and
the benefit of pass-through taxation.
Owners of an LLC are called members. Since most
states do not restrict ownership, members may include
individuals, corporations, other LL Cs and foreign
entities. Most states also permit "single member" Ll Cs,
those having only one owner.
The Sub-chapter S Corporation is a variation
of the standard corporation. The S
corporation allows income or losses to be
passed through to individual tax returns,
similar to a partnership.
Generally, an S corporation is exempt from
federal income tax other than tax on certain
capital gains and passive income.