Talking Taxes: Exploring How Medical Cannabis Fits Into Tax Law
The following article explores the role of medical cannabis within the context of Illinois Tax Law as an example.
Medical Marijuana and Your IL-1040
As cannabis continues to make a growing impact on the world at large, it’s implications on how one approaches their taxes is not something often discussed. While talking taxes may not be the most exciting topic of conversation after medicating, there are some things you should know.
Can I Get Tax Deductions Off My Medical Cannabis Expenses?
When completing your IL-1040 for 2018, you might notice Line 22 in Step 7, titled the Compassionate Use of Medical Cannabis Pilot Program Act Surcharge. This tax is only imposed on those businesses reaping a profit from medical cannabis in Illinois, but it might have you wondering: can I deduct any personal income that was spent on medical marijuana throughout the year? As part of the Opioid Alternative Pilot Program, Illinois has started to grant medical marijuana cards to qualifying patients and caregivers. Unfortunately, however, currently you cannot deduct these expenses on your tax return. Here are some reasons why.
Cannabis’ Schedule I Status Gets in the Way Once Again
Foremost, given the federal status of cannabis as a Schedule I substance, it is technically still illegal. The IRS is a federal agency, and state legislation does not supersede that of the federal—state laws don’t matter to the IRS. In fact, the IRS explicitly states that only prescription medication can be deducted and, while a physician “authorization” is needed to access medical cannabis, it certainly is not a prescription medication as of yet.
No Way to Deduct Medical Expenses on the IL 1040 Personal Tax Return
Secondly, it is incredibly rare for anyone to deduct medical expenses on the Illinois 1040 personal tax return. Even if you could, understand that in 2018, the standard deductions were increased from $6,500 for individuals, $9,550 for heads of households, and $13,000 for those who are married and filing jointly, to $9,000, $18,000, and $24,000, respectively. On your federal 1040 tax return, you will take the larger deduction, either the standard deduction outlined above, or your itemized deduction. Schedule A of the 1040 does let you list medical expenses as an itemized deduction, but in most cases, unless you have significant itemized deductions, you’ll end up taking the standard deduction.
Understanding the “Floor”
This is largely due to the “floor” of 7.5% imposed on your medical expenses itemized deduction. For example, if you have a $50,000 adjusted gross income, your floor would be $3,750 (7.5% of $50,000). If you had $5,000 worth of medical expenses, you can only include $1,250 ($5,000 – $3,750) within your itemized deductions. These are then compared to the standard deduction, with the larger of the two chosen as the deduction from your adjusted gross income before calculating the tax due. Even if medical cannabis was deductible, most would end up not deducting it, as the standard deduction would be the better choice.
Out of Pocket Until Further Notice
For now, medical marijuana continues to be an out-of-pocket expense. As legislation shifts and the landscape evolves, one can only hope that someday medical cannabis patients in IL will finally get a break!
by Dean Sangalis (Executive Content Engineer, Karmik) & Gaurav Dubey (Lead Staff Writer, TMCC & Co-Founder/President, Karmik)