Tax Credits & Deductions Available for Cannabis Companies with a Retirement Plan
Federal tax credits and tax deductions are available to cannabis companies and organizations that adopt a 401(k) Plan. Tax credits available to companies for starting a retirement plan are different from tax deductions available to companies for making company contributions to a retirement plan over time.
In 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act providing for the most comprehensive retirement plan legislation in over a decade! Under the SECURE Act, a company can claim a minimum of $500 up to $5,000 annually in the form of a federal tax credit when starting or participating in a new 401(k) plan. Moreover, if the 401(k) plan has an automatic enrollment feature (where employees are added to the 401(k) plan unless and until they opt out), then another $500 annual federal tax credit is available. Thus, a company could be entitled to $16,500 in federal tax credits over a three-year period just for offering a retirement plan to its employees!
Keep in mind, that a company can claim federal tax credits as well as federal tax deductions. A federal tax credit reduces tax liability dollar for dollar, whereas a federal tax deduction reduces the amount of taxable income. Taxable income, in turn, is used to calculate tax liability. Tax credits are generally more valuable because they reduce the amount owed to the federal government. Tax deductions, on the other hand, reduce tax liability by the tax rate for every dollar of the deduction.
