It looks like marijuana may be moving from a Schedule 1 to a Schedule III drug. Schedule 1 is the highest level under the Controlled Substances Act.
In 2022, President Biden requested a review of whether to reclassify marijuana to a lower schedule or to take it off the list. In 2023, the Dept, of Health and Human Services advised reclassifying the drug to Schedule III, which the Dept of Justice has confirmed will be done soon by the DEA.
Obviously, the criminality and sentencing guidelines will change, but there are also some tax changes.
Schedule I and Schedule II drug sales are not allowed to claim business expenses on their tax returns. That means that currently (May 2024), marijuana dispensaries, although legal under state law, are not allowed to take deductions on their federal return. It doesn’t matter that the sale is legal under state law where the dispensary is located.
If the drug is downgraded to Schedule III, as stated, legal marijuana firms will be able to deduct business expenses.
Regarding the marijuana businesses and tax laws, will the anticipated changes allow patients to deduct their medication as a health cost (finally)?
Hi Tatum:
The IRS does not allowed a medical deduction for marijuana use because it is a scheduled narcotic. The change will move it from Schedule I to Schedule III, so presumably there won’t be a medical deduction allowed for medical marijuana, even if prescribed.
It’s possible they may make an exception, but so far, they haven’t commented on that.