State Allowed Marijuana Activity: Do Regular Business Deduction Rules Apply (or Those for Drug Dealers) (MO 3.1)

Cole England operates Herbal Center in Sacramento, CA, as a sole proprietorship. The distribution of marijuana for medical purposes as well as nonmedical use by adults is legal in CA.

This is Coles first year of business operations, and he reports the following tax information:

Revenues$200,000

Cost of Goods Sold$120,000

Other Business Expenses$50,000

Cole reported $30,000 of net income on Schedule C this year for Herbal Center.

Instructions:

Is the net income figure of $30,000 correct for federal income tax purposes?Why or why not? If not, what is the correct federal income tax net income figure?

What is your opinion on the federal law regarding deducting expenses of this business ? Why do you agree or disagree with it?

include a reference to the tax law(s)/Internal Revenue Code section(s) dealing with this issue