Sole Proprietors and Single Member LLCs Wholly Owned By An Individual

Individuals file and report this business income on their Form 540. If your cannabusiness is a sole proprietorship, you would report business income and expenses using Federal Form Schedule C, Profit or Loss from Businessor Federal Form Schedule F, Profit or Loss from Farming.

 

An individual owner of a single member LLC (SMLLC) that is treated as a disregarded entity, reports the income on Schedule C or Schedule F. The SMLLC must also file the Form 568 and pay the annual tax and it’s LLC Fee. 

 

Here are some details to help you file:

 

• Expenses and deductions: You can deduct cost of goods sold. You cannot deduct other business expenses, such as rent and wages.
• Credits: You can receive business tax credits if you meet the specific requirements for the particular credit. 

   

The California research credit is based on federal law. The ability for cannabis businesses to take that credit could be limited by the federal rules, which still consider cannabis an illegal substance.

 

Note: California does NOT allow Cannabis as a medical expense deduction, including medical deductions on Schedule A.

 

 

Partnerships and Limited Liability Companies Treated As Partnerships

 

If your cannabis business is a partnership, you should report your business income and expenses using CA Form 565 or 568. Individual partners report their share of this business income on their Form 540.

 

Here are some details to help you file:

 

• Expenses and deductions: You can deduct cost of goods sold. You may not deduct other business expenses, such as rent and wages

   

• Credits: You can receive business tax credits if you meet the specific requirements for the particular credit. 

   

Corporations (including Co-ops, Collectives and Limited Liability Companies (LLC) That Elect To Be Treated As A Corporation) 

 

Incorporated entities normally file a Form 100, California Corporation Franchise Tax or Income Tax Return. Cannabis cooperatives file Form 100 and taxed like a corporation.

 

Here are some details to help you file:

 

• Expenses and Deductions: If your cannabis business operates under California's corporation tax law, you can deduct cost of goods sold and ordinary and necessary business expenses.

   

• Credits: Your cannabis business can receive business tax credits if it meets the specific requirements for the particular credit. 

   

S Corporations and Limited Liability Companies (LLC) Treated As Corporations

 

If your cannabis business is an S corporation or LLC electing to be taxed as a corporation, you report business income and expenses using CA Form 100 or 100S.

 

Here are some details to help you file:

 

• Expenses and Deductions: For S corporation tax computing purposes, the S corporation can deduct cost of goods sold and ordinary and necessary business expenses. 

   

• Credits: Your cannabis business may receive business tax credits if it meets the specific requirements for the particular credit.