The wave of marijuana legalization that has swept across the country in recent years continued in the recent midterm elections. Oregon, Alaska and the District of Columbia all voted to legalize the drug for recreational use. As many expected, the cannabis industry is booming in states like Colorado, and some analysts predict that legal U.S. marijuana revenue could reach $10 billion by 2018.
There has long been an underground marijuana culture in the United States, but recent state-specific legalization has meant that the federal government is benefiting from marijuana tax revenue for the first time. Ironically, this boost in tax revenue has come despite the fact that marijuana is still illegal on the federal level.
While many newly-legal cannabis businesses are flourishing, some are suffocating under the weight of a federal tax code that business owners feel is unfair and is keeping black market marijuana dealers in business.
Provision 280E of the federal tax code is at the center of this marijuana tax debate. The tax code states that all income, whether earned legally or illegally, is subject to federal income tax law. Typically, a business is allowed to deduct business expenses such as advertising costs, rent, utilities and employee salaries from earned income prior to paying federal tax.
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