As a relatively new industry, many CBD providers have questions about how to account for certain products and how to report those products on year-end taxes. The good news is that the IRS has released specific guidance on how to tax CBD products.
What Category Does CBD Fall Under?
CBD oil and other CBD products are taxed as dietary supplements. This means that you must include the gross sales from CBD products in your total income for the year. You must also report the cost of the goods sold, which includes the cost of the CBD oil and any other ingredients used to produce the product.
You can deduct the cost of goods sold as a business expense, which will reduce your taxable income. You should also keep track of any promotional expenses you incur in order to sell CBD products, as these can be deducted as well.
What About Sales Tax?
Sales tax is generally paid by the customer, but you may be responsible for collecting it and reporting it to the state. The rules vary from state to state, so you’ll need to check with your local tax authority to find out what applies in your area.
Remember that you are responsible for accurately reporting all income and expenses on your taxes, so be sure to consult with a tax professional if you have any questions about how to tax CBD products.
Using Accounting Software for Your CBD Business
When it comes to choosing the right accounting software for your business, CBD is treated like any other type of product. You’ll have options like Quickbooks, track things in Excel or use a specialized type of accounting software.
Inventory Tracking
When it comes to accounting for CBD, you’ll want to make sure that the software you choose can handle inventory tracking. This will allow you to keep track of how much CBD oil and other ingredients you have on hand, as well as how much product you’ve sold. This information is essential for accurately reporting your income and expenses.
State & Federal Taxes
CBD businesses also need to be aware of the fact that they may be subject to state and federal taxes. The right accounting software will help you track all of your taxable income and expenses, so you can file your taxes correctly.
Preparing for Future Tax Concerns
The CBD industry is always changing and it’s important for you to stay aware of the accounting and tax implications. As new products and services become available, you’ll need to make sure that your accounting software can handle them. This will help you stay compliant with the latest tax laws and avoid any costly mistakes.
The Bottom Line
The bottom line is that CBD products are taxed as dietary supplements, which means that you must include the gross sales from CBD products in your total income for the year. You must also report the cost of the goods sold, which includes the cost of CBD oil and any other ingredients used to produce the product. For certain CBD manufacturers that use a variety of materials, you can deduct the cost of goods sold as a business expense, which will reduce your taxable income. You should also keep track of any promotional expenses you incur in order to sell CBD products, as these can be deducted as well.
