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Is Medical Marijuana Tax Deductible? CPA Explains | Cannabis Business Tax | Noel B. Lorenzana CPA - YouTube
Channel: Noel B. Lorenzana, CPA - Ask An Accountant
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Is medical marijuana tax deductible?
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In this video, I'll be answering a common
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question that I've been
getting asked a lot.
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Our medical marijuana expenses,
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tax deductible,
great question,
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with lots of states legalizing marijuana,
it's all very interesting.
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If marijuana is legal in your state, then
you'll want to watch this video later on.
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I'll explain who can deduct medical
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expenses and how to deduct them
on your personal tax return.
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Hi, my name's Noel Lorenzana
and I'm an accountant.
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On the federal level,
marijuana remains illegal.
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The federal government classifies
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marijuana along with heroin
and cocaine as a Schedule one drug.
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It's described as high potential for abuse
with little to no medical benefit.
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OK,
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as a result of the conflict between
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federal and state law,
residents in some states can find
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themselves using marijuana legally
for medical purposes in compliance
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with their state law while
simultaneously violating federal law.
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I know this is pretty messed up,
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so unfortunately, since medical marijuana
is illegal on the federal level,
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it is not tax deductible as a medical
expense, according to the IRS,
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given the growing trend toward
legalization of marijuana at the state
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level, federal lawmakers have introduced
proposals to align with the states.
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But as of yet, the proposals
have gone up in smoke.
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Before I tell you how to deduct medical
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expenses on your tax return,
let me give you some background
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on a revenue ruling dating back
to nineteen ninety seven shortly after
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California became the first state
to legalize medical marijuana.
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This Internal Revenue ruling,
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specified than an amount paid to obtain
a controlled substance such as marijuana,
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is not a deductible medical expense,
even if state law requires it
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and the taxpayer obtains
a prescription from a physician.
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Under IRS regulations,
the term medicine and drugs includes only
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items that are legally procured, and that
means legally procured under federal law.
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In the ruling, the taxpayers purchase
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and use of medical marijuana
was permitted under state law.
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Moreover, the IRS ruled that a controlled
substance such as marijuana obtained
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in violation
of the Federal Controlled Substance Act is
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not legally procured for purposes
of the medical expense deduction rules.
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Current federal tax law allows a deduction
for reimbursed medical expenses
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to the extent they exceed a percentage
of your adjusted gross income.
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As a general rule, a deduction is allowed
for the cost of a medicine or drug if
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the medicine or drug is
prescribed by a physician.
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However, medical marijuana is a different
story. So who can deduct medical expenses
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and how can you deduct them
on your personal tax return?
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How much you can deduct depends on your
income in general,
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you can deduct qualifying medical expenses
that are more than seven and a half
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percent of your adjusted gross
income for twenty twenty one.
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For example, if your adjusted gross income
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is fifty thousand dollars,
anything above the first three thousand
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seven hundred fifty of your on reimbursed
medical expenses could be deductible.
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So if you had ten thousand dollars
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in medical bills, six thousand two hundred
fifty of it could be tax deductible.
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Keep in mind, you have to itemized
deductions to take advantage of this.
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What does that mean?
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It means that your itemized deductions
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must be higher than
the standard deduction.
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You can't get a medical expense deduction
if you're not itemizing your deductions,
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which is calculated
on schedule a form 10 40.
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Itemizing your deductions can have
its own difficulties, though.
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You'll have extra paperwork to complete
and you'll need to have documentation
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to support your deduction
in case you're ever audited.
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So to recap, your allowed medical expense
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deduction and other itemized deductions
will need to exceed the standard deduction
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in order to be able
to deduct medical expenses.
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I hope that makes sense if it
doesn't leave your question below.
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I hope you enjoyed the video.
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If you did, please consider hitting
the like and subscribe button.
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It means a lot and helps
me grow my channel.
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My name is Noelle.
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I help people who don't have their own
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personal accountant by answering not so
common money, business and tax questions.
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Thanks for watching and see
you in the next video.
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