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Cannabis Dispensary Taxes Explained: 280E, Quarterly Payments, and How Much to Set Aside
How cannabis taxes work under IRS 280E. Learn how dispensary taxable income is calculated, why effective tax rates are high, how quarterly estimated payments work, and how to calculate a weekly tax reserve.
What This Covers
- How IRS 280E changes cannabis taxation
- How much tax dispensaries actually pay
- How quarterly estimated tax payments work
- How to calculate a weekly tax set-aside
- Common tax mistakes that create cash flow crises
How Cannabis Taxes Work Under 280E
Cannabis remains federally illegal under Schedule I of the Controlled Substances Act.
Because of this, IRS 280E prevents cannabis businesses from deducting normal operating expenses.
You may deduct:
- Cost of Goods Sold (COGS)
You may not deduct:
- Rent
- Payroll
- Marketing
- Insurance
- Professional fees
This increases taxable income significantly.
How Much Tax Does a Dispensary Actually Pay?
Federal corporate tax is 21%.
However, the tax base is inflated under 280E.
Real Example
Revenue: $3,000,000
COGS: $1,800,000
Operating expenses: $900,000
True profit: $300,000
Taxable income under 280E:
$3,000,000 – $1,800,000 = $1,200,000
Federal tax at 21%:
$252,000
Effective tax rate on real profit:
$252,000 ÷ $300,000 = 84%
This is why many dispensaries feel profitable but run out of cash.
Why Cannabis Businesses Must Pay Quarterly Taxes
The IRS requires businesses to prepay taxes throughout the year.
Estimated payments are generally due:
- April
- June
- September
- January (following year)
Quarterly payments are based on expected annual taxable income — not real profit.
Using the example above:
Annual federal tax: $252,000
Quarterly payment: $63,000
If those funds are not reserved, penalties may apply.
What Happens If You Underpay
The IRS may assess:
- Underpayment penalties
- Interest charges
- Increased scrutiny
Repeated underpayment can increase audit risk.
How Much Should a Dispensary Set Aside Each Week?
A simple calculation:
- Estimate annual taxable income (Revenue – COGS)
- Multiply by 21% federal rate
- Divide by 52 weeks
Example:
Expected annual tax: $252,000
Weekly reserve:
$252,000 ÷ 52 = $4,846
That amount should be transferred weekly into a separate tax account.
Why a Separate Tax Account Is Critical
Without a dedicated tax reserve:
- Tax funds get used for payroll
- Slow months create shortfalls
- Quarterly payments are missed
- Penalties accumulate
A separate account protects operating cash and reduces risk.
Common Cannabis Tax Mistakes
- Calculating taxes based on net profit
- Ignoring 280E until year-end
- Not making quarterly payments
- Mixing tax reserves with operating funds
- Failing to plan for state taxes
