Medical Cannabis as a Tax Deduction: A Closer Look
Many law-abiding citizens are well-intentioned when it comes to using medical cannabis, but misunderstanding about its tax implications can lead to undue stress. In this article, we delve into the legalities and possibilities of deducting medical cannabis expenses on your taxes in California.
Introduction to Medical Cannabis and Federal Law
While there is growing acceptance of the medicinal benefits of cannabis, its legal status remains a complex issue. As of now, medical cannabis is legal in many states, including California, but its federal status as a Schedule 1 drug poses significant barriers to tax deductions.
State Tax Laws in California
Despite the complexities at the federal level, the State of California has taken steps towards recognizing cannabis-related businesses and their financial needs. However, individual cannabis users, such as patients, may not see similar benefits.
California Tax Deductions for Cannabis Businesses
In recent years, California has allowed cannabis-related businesses to file for state tax deductions. This can benefit business owners, but the question remains whether this applies to individual patients.
Itemizing Deductions for Individual Patients
For individual patients, the process of deducting medical cannabis expenses involves itemizing deductions. The federal tax code allows for the deduction of medical expenses if they exceed 7.5% of your Adjusted Gross Income (AGI) for the year 2019.
Medical Expense Threshold and Individual Cases
For example, if your AGI is $40,000, you can deduct medical expenses above $3,000. So, if you incurred $10,000 in medical expenses, $7,000 of that could be deductible. At the state level, the threshold might be lower, allowing for more deductions.
Personal Anecdotes and Expert Opinions
Kevin, an Oregon resident, has a unique perspective on this issue. Since 1998, he has struggled to deduct his medical cannabis expenses, even with a medical card. This underscores the persistent challenges faced by individuals seeking to claim these expenses.
According to Gary DuBoff, a certified public accountant (CPA) and financial planner, the rules vary by state. "Every state has a different rule with regard to the deductions. They don't necessarily follow the federal law," he states. This highlights the need for thorough research and professional guidance.
Future Outlook and Potential Changes
While the current legal landscape presents significant hurdles, there are glimmers of hope. Governor Newsom's administration is dealing with pressing issues such as COVID-19 and a recall election, which might delay major changes.
Evolving Industry Regulations
Recent changes in form 203e, which provides breaks to retailers and growers, offer some relief. However, the industry argues that these changes are insufficient. The FDA's stance on cannabis further complicates matters, as it is currently unregulated and not widely studied for medical approval.
State-Level Acceptance and Future Prospects
States like Oregon, which have progressive policies regarding marijuana, might lead the way in recognizing cannabis as a legitimate medical expense. However, the long-term prospects remain uncertain and depend on broader societal acceptance and political will.
Conclusion
The legal and financial implications of medical cannabis remain complex, but understanding the current landscape can help you navigate the system more effectively. Whether you live in California or another state, it is essential to stay informed and consult with experts to maximize your tax benefits.