CANNAINVESTOR Magazine December / January 2016 - Page 106

Decreasing Cannabis Taxes

Want to drop your taxes by 9%? Learn about "Qualified Production Activities Income (QPAI)" for some last minute tax planning.

So, your in the cannabis business, and you've mastered IRS 280E, you've set up a captive insurance company to lower your insurance bill, you've taken advantage of single purpose agricultural structure credits, and now you think that you've covered all of the tax savings basis.


There is a part of the tax code most practitioners never have to use, so generally they aren't familiar with it's structure or its nuances. It's called the Domestic Production Activities Deduction (DPAD). The good news - it can lower your gross income by UP TO 9%! So, if you gross a $1,000,000, you can lower your DPGR (domestic production gross receipts) by up to $90,000. With IRS 280E swallowing a lot of net income, this can keep up to approximately $45,000 (depending on cost of goods sold and other capitalization efforts) in your pocket. You need QPAI "Qualified Production Activities Income" to take the deduction, which is calculated as follows:

QPAI is the result (if any) of:

1. Domestic production gross receipts (DPGR) MINUS

2. The sum of:

A. Cost of goods sold allocable to DPGR plus

B. Other expenses, losses, or deductions allocable to DPGR.