Setting the Cannabis, Crypto Trend in Accounting

Craig W. Smalley, EA
Founder/CEO
CWSEAPA PLLC
Columnist
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A lot of how I run my business is completely different from 99.9 percent of all accounting firms. For instance, we are probably one of the few accounting firms that uses a server for 1 percent of all work we do. The majority of the software we use is cloud based, rendering a traditional server useless. Then again, at home we cut the cord and don’t have cable. We stream our TV.

I realize that I am in an industry that is so far behind the times, that I did a recent poll in the National Association of Enrolled Agents (NAEA) FaceBook Group asking how many people were still printing tax returns for their clients. 99 percent of those who replied stated that they were still printing and mailing tax returns to clients. We went paperless in 2003, and in our engagement agreement, we charge an additional $100 for a printed return. We converted 99.9 percent of our accounting clients from QuickBooks Desktop to QuickBooks Online. My tax software is cloud based. My research software is cloud based. My tax planning software is cloud based. Off the top of my head, I can’t remember the last time I logged into my server, or printed tax returns for a client.

Then the parts of the tax law that interest me are areas that most accountants won’t touch. For example, six years ago, just as the American Institute of Certified Public Accountants (AICPA) issued guidance for CPAs in warning that working in cannabis could cost their members their licenses, I started working in cannabis. Then in 2013, before the IRS issued guidance, I was the tax accountant and consultant for the largest cryptocurrency company in the U.S. That opportunity led me to work with start-ups that were creating alternative blockchains as well as with the investors that were buying the coins that my client was creating.

I like to be so many steps ahead of other accountants.

Today, the cannabis industry is so oversaturated with accountants that want to work with cannabis. They send me emails wanting me to get them in the industry. I have decided to limit the cannabis clients that I will work with, simply for the reason that I can’t, or won’t, compete in price with another accountant that doesn’t have the knowledge about the industry that I have, or is as well connected that I am. These newbies in the industry will undercut my fees so much that it will be no longer a winning proposition for me to keep up with the different state’s cannabis laws that determine the way you do tax planning. The amount of time that it takes to stay current with all 29 states and the District of Columbia’s different regulations takes as much time as it does for me to do tax research every day.

Does this wave of accountants getting into cannabis and some that have started to get into cryptocurrency have the knowledge, and connections that I have to get around Section 280E that I do, or the connections that I have in cannabis that can lower my client’s start-up costs by 60 percent, and save them hundreds of thousands of dollars in taxes? They don’t.

But the clients that we are all trying to get don’t know that. The best analogy that I can use is that my fees are more than most accountants because I am licensed, have 24 years of experience, have a master’s degree in taxation and do research for hours every day to lower my client’s tax bill.

Meanwhile the accountant down the street is just starting out, doesn’t have a license, and the research they do is limited to reading an IRS publication. When a client sees my fees juxtaposed to the other guy’s fees, human nature will tell you that unless the person knows the difference, and most client’s don’t, they will go with the lower fee.

All of that said, there are some hardcore beliefs that I have that are more traditional. For instance, whether we like it or not, we are in sales to a certain degree. Most people want to do business with someone they know. As a consequence, I spend a small fortune on entertaining clients.

For example, in Orlando the hottest ticket in town is for our Major League Soccer (MLS) Team, Orlando City. My office is located in the Central Business District of Downtown Orlando, and is walking distance to the stadium. I have four season tickets that are five rows from the soccer field. During soccer season, we use these tickets to take clients to the games, because getting a ticket nowadays is next to impossible. For a client to see you out of the office, not in a suit, having a couple of beers and loosening up really goes a long way.

That’s not to mention, even though the Orlando Magic — our local NBA team — isn’t the best team in the league, each game sells out, and we have season tickets and take clients to those games. Conveniently, the Arena is walking distance from our office.

Finally, baseball may be our national pastime, but football — especially in Florida where it is the football capital of the world — is our national passion. Tampa is an hour and a half away from Orlando, but we have season tickets, and take clients to those games as well.

These season tickets cost a small fortune, but honestly, they promote client loyalty, make our clients friends, and have converted potential new clients to clients. They pay for themselves. In the new tax law these entertainment expenses are not deductible. Meals are still 50 percent deductible, and ever since 1986 the client gift rule is still only $25. A whole other article can be written about how that amount has never been adjusted for inflation. The point that I am making is that these expenses that we have, are absolutely necessary, the argument that we are partially in sales makes them ordinary. So why are they no longer deductible?

I am faced with the decision, should I still buy these tickets with after-tax dollars, or accomplish the same thing by taking a client out for drinks and dinner because that is deductible.

I discussed this in my previous article How to Deduct Entertainment Under the New Tax Law.

About Craig W. Smalley, EA

Craig Smalley

Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.

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