A CPA’s Advice to Business Owners in the Hemp Industry

There are endless things that you should be considering for your hemp business from a financial/accounting/tax standpoint, which is why it is so important that your CPA is knowledgeable in hemp. For starters, here is a very basic list of topics you should be thinking about, and some questions you should be asking yourself and discussing with your CPA.

Research and Development Tax Credits.

Are you involved in any type of developmental or experimental research related to hemp?

Could the words develop, experiment, create, research, test, or design be used to describe what you do? If so, it is very likely you are involved in an activity that may qualify for the research and development tax credit. Some examples of activities that may qualify include:

  • Designing, developing, or testing cultivation or extraction techniques.
  • Designing new or improved processes and systems for testing potency or related indicators of a particular strain.
  • Developing or experimenting with new technology, equipment, or processes that could increase yield or production.
  • Discovering or designing new uses for any part of the plant.

Chances are you are involved in research and development activities in some capacity in the hemp industry. Though, just being involved in an activity does not guarantee that it will be considered a “qualifying activity.” The activity must satisfy a four part test to be considered a “qualifying activity” eligible for the lucrative R&D tax credit:

  1. Technological in Nature
  2. Permitted Purpose
  3. Elimination of Uncertainty
  4. Process of Experimentation

Whether you are experimenting and improving processes for growing, cultivating, or processing the plant, or researching and designing new uses for the plant, you may be eligible for this tax credit and you should have this conversation with your tax professional. Qualifying could benefit you by an offset to income tax or even payroll tax.

Sales Tax: exemptions, filings, compliance, collecting & remitting, and more.

Are you eligible for any sales tax exemptions? Are you collecting and remitting sales tax?

Are you eligible to receive a refund for sales tax paid before being granted an exemption? What do your state laws require regarding sales tax?

Do you or should you have an established sales tax policy that is available to customers or buyers?

Whether you are a farmer, processor, wholesaler, or retailer, sales tax compliance should be at the front of your mind when you consider compliance for your hemp business.

It is highly likely that you are either eligible for a sales tax exemption, should be collecting and remitting sales tax, are required to file sales tax returns (quarterly or even monthly), or are not completely compliant with your state laws regarding sales tax.

When you consider the recent influx of sales tax legislation in combination with an industry experiencing both exponential growth and increasing regulation, you have a combination of red flags that greatly increases the importance of having tip-top compliance. Ensuring compliance in this aspect early on will likely set your business apart from many others in the future.

Accounting records should be: accurate, timely, and compliant.

Do you have separate bank accounts and credit or debit cards for your business? Are you using a formal accounting software?

Do you have a bookkeeper or are you keeping track of this on your own? Are your business bank accounts and credit cards reconciled every month?

One of the biggest mistakes a business owner can make in any industry, but especially an industry that is experiencing such rapid growth, is not investing in the resources that will help determine the future of your business.

The hemp industry is still very new to many which poses a higher likelihood for audits and inquiries. Ensuring accurate and compliant accounting records is imperative to success in this market.

Consider the future of your business… What does that look like to you? Will you pass down the business to future generations? Will you build an empire that you will later sell? Or maybe you plan to franchise? Regardless of what your business plan is, creating a solid accounting framework is key.

 

For more information or to schedule a free consultation with a CPA knowledgeable in the hemp industry, contact [email protected] or call (910) 256-3456.

As a proud and active member of the North Carolina Industrial Hemp Association (NCIHA), we have a strong network of professionals occupying all verticals of the hemp industry. If we cannot assist your current hemp-related needs, we are confident that we can connect you to someone that can.

You’ve Received an Incorrect Business Property Tax Listing Assessment- Now What?

In October, North Carolina county property tax offices send out business property tax assessments for property tax on items like computers, desks, etc.  Those assessments are based upon property tax listings that must be submitted to the county by January 31st.

What if your county doesn’t have a property tax listing submission from you?  In New Hanover County, if they do not have a property tax listing for the current year and you didn’t have a listing in the prior year, they will assess you a value based upon some unknown formula.  It usually seems to be somewhere in the range of $40,000-$60,000 worth of equipment.

Why would they not have a property tax listing for you?  There are a couple of reasons:

-You did not submit a listing.  This rarely happens with our clients as we have a process for businesses that includes this.

-They lost or did not process your submission.

-You did not know that you needed to submit one.  This most often happens with a new entity that is not active.  If you have an LLC or Inc you are not using you would not consider it an active business, while New Hanover County combs the Secretary of State business registrations to look for entities without business listings.

What do you do if you received a notice?  We can help you navigate that process- whether it is submitting a listing or corresponding with the county property tax office to let them know that the business is not active and does not have any business assets.

Are you:

-Tired of having no books (accounting records).

-Tired of doing it yourself?

-Tired of having messy books or a problem you can’t solve?

We can help- we now offer bookkeeping services.  Reachout to us @ [email protected] to find out how we can help.

NC Hemp Industry: Massive Opportunity, Minimize Your Risk

The momentum driving the hemp industry has continuously increased in recent years, but with the passage of the Agriculture Improvement Act of 2018 effective last December, the industry’s momentum has reached an all-time high both locally here in North Carolina and nationwide.

The Agriculture Improvement Act of 2018, commonly known as the “2018 Farm Bill”, decriminalized hemp and hemp-derived compounds (or hemp-derived CBD), which initiated massive opportunity and growth in the industry both commercially and economically.

There are many reasons why this industry is thriving – consumer awareness, deregulation, availability but perhaps the dominating factor is the usefulness of all parts of the plant including the seed, stem, fiber, and flower.

The hemp plant is used across countless markets, both commercial and industrial. Uses of hemp include, but are certainly not limited to: textiles including clothing, shoes, and fabrics; industrial textiles including ropes, canvas, carpeting, and netting; paper including packaging, print, and cardboard; body care products including soap, shampoo, lotion, and cosmetics; building materials including fuel, solvents, coatings, and fiberboard; food including protein powder, seed oil, and supplements.

The opportunity for growth in this market is endless, but that does not come without a great amount of uncertainty and subsequent risk, which further increases the importance of having knowledgeable professionals in your corner.

The hemp industry occupies a very unique environment from an accounting perspective. By not having an accounting professional knowledgeable in this market, you not only risk violating compliance laws, but you also risk missing out on various deductions and credits. One of which is the valuable Research and Development tax credit.

If you are in this industry, especially in North Carolina (or really anywhere on the East Coast), you know how difficult it can be to find the professional accounting guidance that is necessary for your business to prosper in this market. The shortage of accounting professionals and CPAs servicing this industry locally is largely due to the amount of time and research that is necessary in such a unique niche.

Whether you are in involved in farming, cultivation, production, distribution, retail, processing, or any other segment of the hemp industry, we are here to help. We offer a broad spectrum of accounting and consulting services that are tailored specifically to meet each clients individual needs. Our services include providing guidance related to income tax and sales tax compliance, cultivating tax planning strategies to maximize credits and minimize tax liability, bookkeeping, advisory services, and much more.

As a proud member of the North Carolina Industrial Hemp Association, we are committed to the success of the hemp industry and are excited to partner with clients in this market.

Want to know more? Schedule a free hemp accounting consultation today.

Eliminating Affordable Care Act (ACA) Penalties

We have implemented a legal but little known strategy to help our clients prevent income tax return penalties for not having health insurance. It saves the average person in that situation thousands of dollars. We can apply this strategy to both current year income tax returns as well as previously filed returns for the prior 2-3 years. Let us know if you want to discuss!

Does Your Business Need a Checkup?

If I asked you how much cash flow your business generated last month, would you know? How about for last year? If you constantly feel like you are working for nothing, or if you have no idea what your business is really making for you, it’s time to make some changes. Let’s discuss some ways you can start being more proactive and ways you can start improving.

First and foremost, there are some ground rules that every business owner needs to abide by:

1. Your books have to be reconciled monthly on a timely basis. Set a closing date to have the prior month’s activity input and reconciled. The sooner you can have the books closed the better.

2. You have to review your financials at least monthly, once the books are closed. If you wait to review everything when you are having your tax return prepared, you’ve already missed an entire year that you could have fixed any issues! If you don’t have time to devote, hire us as your Virtual CFO!

3. You must have internal controls established. They help mitigate the risk of fraud, and are a core foundation to your business.

Once you can start operating under these guidelines you can implement your plan to start having a better understanding of how your business is performing. Now that you have your current up-to-date books, you can take a look at your current figures and determine your cash flow. If your cash flow is weak, you need to review where the money is going each month. Are you highly leveraged with debt? Are you spending money on unnecessary items? Are you using credit cards that carry high balances? If all of those check out, are you in a good location? Is your marketing strategy working? Are your employees being productive? Are your employees being utilized to their maximum extent? There are lots of areas that can impact your ultimate cash flow, and sometimes you have to look beyond just what the actual financials show.

Once you determine what your areas of focus need to be, you pick 3-5 metrics, or Key Performance Indicators (KPIs), that will help you track your progress towards the goals. KPIs can be ratios such as office supplies as a percentage of revenue, salaries as a percentage of employee production or debt to equity ratio (there are endless possibilities). You then track your actual ratios compared against your target/goal ratio (which is often based on industry ratios). Of course, you have to have a game plan in place of how you will improve these ratios and you have to be accountable for what you should be doing. Sometimes you have to implement something new, sometimes you have to change habits, and sometimes you have to change processes.

If you are curious whether or not your cash flow could improve, please reach out to us at [email protected] We will do a complimentary evaluation for you.

Important 1099 Information

As we embark on the start of 2019, tax preparers are preparing for the start of busy season.  With January comes due dates for 1099s and W-2s.  Most of the time, taxpayers do not realize that they need to prepare any 1099s.  Within the last few years we have seen the following questions appear on Schedule Cs, Schedule Es, and business tax returns:

1.)        Did you make any payments in 20XX that would require you to file Form(s) 1099?

2.)         If “Yes,” did you or will you file required Forms 1099?

As paid preparers, we have to make sure that we answer these questions correctly, which means verifying with you, the taxpayer, whether or not you had any required 1099s to be filed.  The penalty for not filing a 1099 ranges from $50 per 1099 to $100 per 1099, depending on when the forms are filed.

 

Do You Need to Prepare 1099s?

If you have paid someone over $600 for services (including subcontractors, repairs, computer service and any other service someone provided you) or for rent, then you most likely need to send them a 1099.  However, if you paid a corporation or paid them via credit card, debit card, Paypal or Stripe, then you are not required to send a 1099.  Some corporations are still required to receive a 1099, such as attorneys.  We advise all clients to have people who are providing services for them to fill out a W-9.  This helps us determine if they need to receive a 1099 because they have to tell us what type of entity they are by checking a box.  The following payments would require issuance of a 1099:

-Rent over $600 – reported on 1099-Misc

-Royalties over $10 – reported on 1099-Misc

-Other Income over $600 – reported on 1099-Misc

-Nonemployee Compensation over $600 (Independent Contractors) – reported on 1099-Misc

-Gross Proceeds Paid to an Attorney over $600 (this is reported in Box 14 of 1099-Misc  it typically applies if you paid out a settlement, any other legal services would be reported in Box 7 on 1099-Misc)

-Interest on Business Debt to Someone over $10 (excluding interest on an obligation issued by an individual) – reported on 1099-Int

-Dividends or other distributions to a company shareholder over $10 (most applicable to C Corporations) – reported on 1099-Div

 

What Do We Need to Prepare a 1099?

As mentioned previously, you should have anyone fill out a W-9 who will be receiving payment for any of the items listed above.  On the W-9, they list their legal name, federal ID or social security number, address and type of entity.  I cant stress the importance of having the W-9 before you pay the person.  If you pay somebody one time for $2,000 and do not have any of their information, and then in January you are not able to reach the person to get their information, youre in trouble and potentially could face penalties from the IRS for not submitting a complete 1099.

Please feel free to reach out to us if you have any questions regarding 1099s.

How to Make S Corporation & C Corporation Income Tax Payments

If you owe a balance for your Corporate income tax return, you have several options to pay.

 

If you are a C Corporation and owe federal, you must pay that via EFTPS.  We can point you in the right direction to set this up if you don’t have it already.  If you are an S Corporation, you should not owe anything with the federal income tax return.

 

Your first option to pay is by mailing a check with payment vouchers.  If we had an in-person completion meeting with you, we provided you a printed voucher at that time.  The voucher is also available on your Sharefile as a separate PDF file.  You write the check and mail it in with the voucher.  The voucher typically also lists helpful information for who to make the check payable to, where to mail it, and important information to include on your check.  We advise sending certified return receipt.

 

You may also pay your taxes online.  Below you will find step by step instructions for paying the NC balance.

 

NC

Go to https://eservices.dor.nc.gov/cdv/

  1. Fill in your contact info and click next.
  2. Select Calendar Year or Fiscal Year. If your return reports January-December, you are a calendar year taxpayer.
  3. Fill in all information.
  4. For franchise tax due and corporate income tax due, refer to the vouchers we provided you. The voucher indicates whether it is franchise tax or corporate income tax, as well as the amount that needs to be paid. Enter the amount you are paying and click next.
  5. If you are only paying Franchise Tax, select File CD-V and Pay Franchise Tax Only. If you are only paying corporate income tax, select File CD-V and Pay Corporate Income Tax Only. If you are paying both, select File CD-V and Pay Franchise and Corporate Income Tax.  Click next.
  6. Choose payment selection and continue through remaining prompts and screen until you receive confirmation. Please be sure to print a copy of the confirmation and save for your records.

How to Make Individual Income Tax Payments

If you are filing an individual income tax return and owe, you have several options to pay.

 

Your first option to pay is by mailing a check with payment vouchers.  If we had an in-person completion meeting with you, we provided you printed vouchers at that time.  The vouchers are also available on your Sharefile as a separate PDF file.  You write the check and mail it in with the voucher.  The vouchers typically also list helpful information for who to make the check payable to, where to mail it, and important information to include on your check.  We advise sending certified return receipt.

 

You may also pay your taxes online.  Here are step by step instructions for making federal and NC individual income tax payments online for an original return.  (If you are paying in for an amended return, do not use these steps.)

 

Federal

Go to https://www.irs.gov/payments/direct-pay

  1. Click Make a Payment.
  2. Reason for payment -> Tax Return
  3. Apply payment to -> 1040
  4. Tax Period for Payment -> Select year for the return you are filing.
  5. Click continue and input data to verify your identity. You will need a prior year return for this step. If we prepared your return, it’s available on Sharefile.
  6. Continue following prompts until you receive confirmation. Be sure to save or print the confirmation page.

 

NC

Go to https://eservices.dor.nc.gov/d400v/d400vContact.jsp

  1. Fill in your contact info and click next.
  2. Select Calendar Year – it will auto select most current year. If you are paying in for a different year, select that year.
  3. Fill in all information and click next.
  4. Select payment method.
  5. Input payment information, payment amount and date you would like it to draft.
  6. Click next. Be sure to save or print the confirmation page.

How to Make Individual Estimated Income Tax Payments

If you need to make a quarterly estimated income tax payment, you have several options to pay.  Note that these payments are due April 15th, June 15th, September 15th, and January 15th.

 

Your first option to pay is by mailing a check with payment vouchers.  If we had an in-person completion meeting with you, we provided printed vouchers to you at that time.  The vouchers are also available on your Sharefile as a separate PDF file.  You write the check and mail it in with the voucher.  The vouchers typically also list helpful information for who to make the check payable to, where to mail it, and important information to include on your check.  We advise sending certified return receipt.

 

You may also pay your taxes online.  Here are step by step instructions for making federal and NC individual estimated income tax payments online:

 

Federal

Go to https://www.irs.gov/payments/direct-pay

  1. Click Make a Payment.
  2. Reason for payment -> Estimated Tax
  3. Apply payment to -> 1040
  4. Tax Period for Payment -> Select year you are making the payment for.
  5. Click continue and input data to verify your identity. You will need a prior year return for this step. If we prepared your return, it’s available on Sharefile.
  6. Continue following prompts until you receive confirmation. Be sure to save or print the confirmation page.

 

NC

Go to https://eservices.dor.nc.gov/nc40/NC40ContactServlet

  1. Fill in your contact info and click next.
  2. Select Calendar Year – it will auto select most current year.
  3. Fill in all information and click next.
  4. Select payment method.
  5. Input payment information, payment amount and date you would like it to draft.
  6. Click next. Be sure to save or print the confirmation page.