Amplifying stories from the Rochester, MN entrepreneurial ecosystem.
Cannabis Industry FAQs for Entrepreneurs
With the legalization of recreational marijuana in Minnesota, there’s a new wave of interest and opportunity for cannabis based businesses in our area. While it may seem like a chill business venture to pursue, there’s a lot to know and learn about this developing market. Take a look at these helpful FAQs to help determine if the cannabis business may or may not be right for you!
Under state law, the licenses to operate cannabis dispensaries and related businesses will be issued by the State of Minnesota once it develops its own set of regulations and policies. The law does allow local governments to establish rules that regulate the locations of the businesses, their hours of operation, signage, and other related issues
CITY OF ROCHESTER
The Rochester City Council approved a moratorium on cannabis startups until 2025 as the state grapples with new rules for legalized adult-use cannabis.
The moratorium doesn't ban smoking and growing marijuana for personal use if you are 21 or older.
What does the new recreational marijuana law do?
It legalizes the possession and use of marijuana for Minnesotans 21 and older. It creates a new state agency, called the Office of Cannabis Management (OCM), tasked with licensing cannabis and hemp businesses and overseeing a legal recreational market, as well as the existing medical cannabis and hemp-derived markets. The law mandates the expungement of all misdemeanor marijuana offenses and creates a Cannabis Expungement Board to review felony offenses for possible expungement on a case-by-case basis. It also imposes new rules and requirements for hemp-based THC drinks and edibles, which exploded in popularity after they were legalized last year.
When does the new law take effect?
Legal retail sales might not begin until early 2025. Virtually all of the bill's changes to the state's medical cannabis program take effect on March 1, 2025.
What kinds of cannabis products will be legal?
Production and retail sale of marijuana flower, concentrates, topicals and edible products, such as candy and beverages. It also permits the sale of immature cannabis plants and seeds, as well as hemp-derived THC products.
Possession limits.
Minnesotans 21 and older will be allowed to possess or transport in public up to 2 oz of cannabis flower, up to 8 grams of cannabis concentrates, and edible cannabis products containing up to a total of 800 milligrams of THC. They could also possess up to 2 pounds of marijuana in their homes.
Will people from out of state be able to purchase marijuana in Minnesota?
Some states, like Illinois, have different purchase and possession limits for nonresidents. Minnesota has no additional restrictions for out-of-state customers, and people with a valid ID showing they are 21 or older would be allowed to purchase cannabis products at licensed retailers. If someone were to cross a border into a neighboring state with legally purchased cannabis, the person could be subject to prosecution in that state. It is also a federal crime to transport marijuana across state lines.
Will people be allowed to smoke anywhere?
No. People over the age of 21 will be allowed to use marijuana in a private residence or in their yard; on private property that is not accessible to the public, if permitted by the owner; or on the premises of a business or event licensed for on-site consumption. Vaporizing or smoking cannabis in a multifamily housing building would be prohibited, however, except for registered medical cannabis patients.
Where will the consumption of cannabis products be explicitly prohibited?
In motor vehicles, on school property and in state correctional facilities. The law requires owners of child day care programs to disclose to parents or guardians if they allow employees to consume cannabis products on the premises outside of hours of operation.
HOME CULTIVATION
Will it be legal to grow cannabis at home?
Up to eight cannabis plants per residence, with no more than four being mature and flowering at the same time. Plants may be grown indoors or outdoors, but they must be kept in an enclosed, locked space that is not open to public view.
It will be illegal to use chemical solvents to extract cannabinoids at home without a license.
Where will I be able to buy seeds or immature plants?
The law allows licensed retailers to sell seedlings and immature plants for at-home growing. There is no provision in the new law regarding the sale or gifting of seeds. The law differentiates between hemp seeds – which are intended to be grown into industrial hemp plants that contain less than 0.3% THC – and cannabis seeds, which are intended to be grown into marijuana plants with higher levels of THC.
How can I get seeds?
There is already a thriving online marketplace of cannabis breeders and seed banks that ship seeds across state lines due to a gray area in federal law.
The 2018 federal agriculture bill legalized hemp products containing less than 0.3% THC by weight. A 2022 letter from the Drug Enforcement Administration to a marijuana industry attorney stated that seeds with less than 0.3% THC can be considered hemp and are therefore legal, at least in the opinion of the DEA, even if – when planted and grown – they would produce marijuana with much larger amounts of THC. However, the federal Controlled Substances Act includes seeds in its definition of illegal marijuana.
The Minnesota Department of Agriculture also clarified in a June email: "Someone selling seed in the state needs to follow proper labeling laws. The MDA issues permits for labeling seed. No one in the state currently has a labeling permit from the MDA for cannabis seed. We will issue permits to label cannabis seed starting July 1 and seed sales will then start Aug. 1."
Types of licenses
Cannabis cultivator, which allows the license holder to grow enough cannabis plants to fill up to 30,000 square feet. Cultivators may also harvest, package and label cannabis flower for sale to other businesses, such as a manufacturer or retailer.
Cannabis manufacturer, which allows a business to process cannabis flower into other products, such as concentrates, edibles and topicals. Manufacturers can sell products to other businesses.
Cannabis retailer, allowing the holder to operate up to five retail stores, commonly called dispensaries in other states, where cannabis products may be purchased by Minnesotans 21 and older.
Cannabis microbusiness, which allows a company to cultivate up to 5,000 square feet, manufacture and sell cannabis products at a single location. A microbusiness may allow on-site consumption of edibles in a dedicated space with a separate entrance. Microbusinesses can also offer live or recorded entertainment.
Cannabis mezzobusiness, which is similar to a microbusiness except larger ("mezzo" is Italian for "medium"). Mezzobusinesses may cultivate up to 15,000 square feet, as well as manufacture and sell cannabis products. However, they will not be allowed to offer on-site consumption of cannabis products or entertainment. A mezzobusiness may operate up to three retail locations.
Cannabis wholesaler, which authorizes the license holder to purchase cannabis flower, immature plants, or other cannabis or hemp products from other businesses and sell them to cannabis manufacturers, retailers, microbusinesses and mezzobusinesses.
Cannabis transporter, which allows the holder to transport cannabis plants, flower and other products between other cannabis businesses. The law requires transporters to obtain insurance and install lockable storage compartments in their vehicles for transporting cannabis. All vehicles must be staffed by at least two employees while transporting marijuana products.
Cannabis delivery service, which allows a business to purchase cannabis products from retailers, medical cannabis retailers, microbusinesses or mezzobusinesses and deliver them to customers. Like cannabis transporters, a delivery service must install lockable storage compartments in its vehicles for transporting cannabis.
Cannabis event organizer, allowing the holder to organize cannabis events lasting up to four days. Event organizers may charge entrance fees and must verify that all attendees are age 21 or older. They may also designate space for on-site consumption (if allowed by the local government) and authorize cannabis retailers, microbusinesses and mezzobusinesses to sell cannabis products at licensed events.
Medical cannabis licenses: medical cannabis cultivator, medical cannabis processor, medical cannabis retailer, as well as medical cannabis combination business, which would allow a medical cannabis business to also sell recreational products.
Can local governments ban cannabis businesses from operating within their borders?
No, they would not be able to ban cannabis businesses entirely. But they would have the option of limiting the number of cannabis retailers to one for every 12,500 residents. If a county meets the one retailer per 12,500 residents threshold, individual cities or towns within that county will not be required to allow a cannabis business.
What are the packaging requirements for cannabis products?
It must be child-resistant, tamper-evident and opaque. Packaging for edibles must be resealable in materials approved by the U.S. Food and Drug Administration for packaging foods. Packaging materials cannot contain or be coated with PFAS "forever" chemicals. Lower potency, hemp-derived beverages would not require child-resistant packaging. Packaging could not resemble that of other products that do not contain cannabis.
Labeling for cannabis products will vary somewhat depending on the type of product, but they will generally be required to identify the name and license number of the cultivator or manufacturer, the batch number, symbols identifying it as cannabis, a warning that the product is not for children and the phone number of the Minnesota Poison Control hotline. Cannabis flower labels must also include the net weight and the amount of cannabinoids. Labels for edible products must include the serving size, the net weight of the product, all ingredients and the amount of cannabinoids it contains per serving.
Will cannabis businesses be allowed to advertise?
Yes, though the ways they can advertise will be strictly limited. Outdoor advertising will be banned for all cannabis businesses. Hemp businesses could advertise outdoors as long as it is unrelated to low-potency hemp edibles.
Cannabis and hemp businesses will not be allowed to advertise in print, television, radio or any other medium if 30% or more of the expected audience is under 21. They will also be prohibited from using online pop-up ads. Direct communication advertising, such as email marketing, will be allowed as long as the business first verifies the recipient is 21 or older. Verification methods could include user confirmation or birth date disclosure, similar to online alcohol and tobacco advertising. Similarly, location-based mobile advertising will require the business to first verify the device owner is 21 or older.
Taxes
How will retail cannabis sales be taxed?
The law imposes a 10% tax rate on the sale of cannabis products. It would not apply to products purchased through the state's medical cannabis program. State and local sales taxes will also apply to retail cannabis sales.
The state will collect additional revenue from application and license fees for marijuana businesses. For example:
A cannabis cultivator will pay a $10,000 application fee, a $20,000 initial license fee and $30,000 to renew its license
Manufacturers will pay $10,000 for both their application and initial license fees and then $20,000 for renewal.
Retailers will pay less — $2,500 for their application and initial license fees and $5,000 for renewal.
A cannabis "microbusiness" will pay no initial license fee, a $500 application fee and $2,000 to renew its license.
Can local governments collect additional taxes on marijuana sales?
No, the law explicitly prohibits local governments from imposing a sales tax solely on cannabis products.
How much tax revenue does the state expect to raise from retail cannabis sales?
By fiscal year 2027, the Minnesota Department of Revenue estimates that recreational marijuana sales could generate about $107 million in annual tax revenue for the state and roughly $21.5 million for local governments. The department estimates state and local governments could take in more than $300 million in tax revenue from fiscal year 2024 to 2027.
How will tax revenue from marijuana sales be used?
The state will share one-fifth of the tax revenue raised with local governments. Revenue will also be distributed to state agencies to cover the costs of oversight of the cannabis industry, law enforcement and various grants created by the legislation.
Starting in fiscal year 2026, yearly state expenditures related to cannabis will include:
$19 million for Department of Health programs
$15 million for "cannabis industry community renewal" grants
$10.8 million for the Department of Public Safety
$3.25 million for the University of Minnesota, much of that helping to set up and run a Center for Cannabis Research at the School of Public Health
Any revenue left over after required expenditures will go to the state's general fund.
HEMP INDUSTRY
How will the new law affect existing businesses making and selling legal hemp-derived THC products?
The existing market for hemp-derived THC food and drink will be allowed to continue as long as businesses register with the Minnesota Department of Health by Oct. 1. The health department will regulate hemp-derived cannabis products until 2025.
As is the case now, only food and beverages with hemp-derived THC in amounts up to 5 milligrams per dose are allowed – with a limit of 50 milligrams per package for edibles and a new 10 mg per-package limit for beverages. Vapes, flower and other products with hemp-derived THC remain illegal.
One immediate change will specifically outlaw THC-P, an extremely potent synthetic cannabinoid that has led to reports of illnesses nationwide. HHC and THC-O are also explicitly banned; only delta-8 and delta-9 THC derived from hemp are allowed.
The Office of Cannabis Management will take over the licensing, regulation and enforcement of the low-dose hemp-derived market on March 1, 2025.
Will liquor stores be allowed to sell hemp-derived products?
Yes, starting May 31, 2023. The bill adds lower-potency hemp edibles and beverages to the short list of items liquor stores are allowed to sell.
Does the law change Minnesota's medical cannabis program?
The new law eliminates the $200 enrollment fee for new patients.
Starting in 2025, more businesses will be allowed to enter the medical marijuana market. State law previously allowed only two operators to grow, process and sell limited types of products at a small number of dispensaries around the state. And medical marijuana providers will be allowed to apply for a license to sell products to both recreational and medical customers (at one site per business per congressional district).
Medical marijuana will not be subject to the 10% gross receipts tax.
Will medical patients be able to shop at recreational retailers?
Yes, but then they would have to pay the 10% tax on products that medical retailers don't have to charge registered patients. Some retailers will be able to sell both recreational and medical marijuana in one location starting in 2025.
What types of jobs could still require testing for cannabis under the law?
A "safety-sensitive" job, which Minnesota law defines as a supervisory or management position in which impairment by drugs or alcohol would threaten the health or safety of any person.
Firefighters and licensed peace officers, including police officers, Minnesota State Patrol troopers and state conservation officers.
Health care workers and caregivers who work with children, vulnerable adults or who treat, examine or provide emergency care to people with medical or mental health conditions.
Positions that require a commercial driver's license or involve the operation of a motor vehicle and are subject to drug or alcohol testing under state or federal law.
Professional athletes whose employment contracts permit drug or alcohol testing.
Jobs funded by a federal grant or any other position subject to drug or alcohol testing under state or federal law.
For those considering venturing into the cannabis industry in Minnesota, the new recreational marijuana law presents a promising landscape of opportunities. With the legalization of adult-use cannabis, the establishment of the Office of Cannabis Management (OCM), and the introduction of various licensing categories, there's ample room for entrepreneurs to enter the market. The law's emphasis on expunging prior marijuana offenses and its rigorous packaging and labeling requirements demonstrate a commitment to social responsibility and product quality.
Home cultivation allowances provide potential for niche businesses catering to home growers, while the inclusion of various license types, from cultivators to retailers, allows for a diverse range of cannabis-related ventures. While advertising regulations are strict, savvy entrepreneurs can still find creative ways to build their brands and reach their target audience.
The taxation structure, with its revenue-sharing model and significant revenue projections, underscores the potential profitability of the industry. This, combined with the growth potential in the hemp-derived market and the extension of opportunities to medical cannabis businesses, makes Minnesota an enticing destination for cannabis entrepreneurs.
However, it's crucial to stay informed about evolving regulations and compliance requirements. Overall, the new recreational marijuana law in Minnesota offers a dynamic environment for entrepreneurs to seize opportunities, contribute to the economy, and be part of a transformative industry while adhering to legal and ethical standards.
Are you an aspiring or early stage entrepreneur seeking assistance with your business idea? We’re happy to help! You can contact our Director of Entrepreneurial Services for assistance at juliana@collider.mn!
Atlas Insurance Brokers Assists Collider Foundation in Providing Ongoing Support to Early Stage Entrepreneurs
The Westfield Insurance Foundation partnered with Atlas Insurance Brokers to donate $8,500 to Collider Foundation to support storytelling work and 1:1 startup assistance to starters in Rochester as part of the Legacy of Caring program. Each year, Westfield’s top independent insurance agents are invited to nominate a local nonprofit in their community to receive a donation. Each year, grants are made to dozens of nonprofits in cities across Westfield’s national footprint.
The Westfield Insurance Foundation, an independent private foundation endowed by Westfield, awards the donation to support their top agents’ local communities. The program is designed to mirror what the insurance industry does every day –stabilize families, businesses, and communities in times of uncertainty. Since 2015, the Legacy of Caring program donates to nonprofits focused on helping under-employed families overcome barriers in education, finance, housing, and jobs, or recover from disasters.
“As Westfield celebrates 175 years, we achieved this longevity by generations of employees and agents working together, committed to preserving and propelling our communities forward,” said Ed Largent, Westfield president, CEO, board chair and Westfield Insurance Foundation chairman. “Westfield continues to build on the strong commitment of caring that the founders of our company imagined. It’s a great feeling to link arms with our agents and make an impact.”
“The team at Atlas Insurance is always seeking opportunities to volunteer and support our community,” said Emily Demers, Director of Operations at Atlas Insurance Brokers. “We are proud and thankful for our collaboration with Westfield, which helps our agency make a more powerful impact on the communities where we live and work.”
"We are incredibly grateful to receive this donation support from Westfield Insurance's Legacy of Caring program and their dedication to supporting local communities. These funds will be used specifically to support our storytelling work and 1:1 startup assistance to starters in Rochester. Thank you so much to Emily and Taylor at Atlas Insurance Brokers for recognizing the work that we do and nominating us for this support. This donation was an incredible surprise and honor for us to receive." said Amanda Leightner, Executive Director of Collider.
At Westfield, it’s about more than writing insurance policies, it’s about going above and beyond to help communities thrive and prosper. Offering support that reflects these values is at the core of the Westfield Insurance Foundation. Westfield is proud to partner with independent agents through the Legacy of Caring program.
About Collider Foundation:
Collider Foundation activates, connects, and empowers Rochester’s early-stage entrepreneurs and small businesses with 1:1 ecosystem navigation, education, space, and storytelling to help foster an inclusive, diverse, and healthy entrepreneurial ecosystem. They believe there should be zero barriers to entrepreneurship for everyone in Rochester with a great idea and a passion to see it grow.
About Atlas Insurance Brokers
Atlas Insurance Brokers is an locally owned and independent insurance company that compares insurance quotes from over thirty companies to save clients time and money. Atlas Insurance is committed to serving the Rochester community and has provided volunteer hours and donations to nineteen local non-profit organizations in the past year.
About Westfield Insurance Foundation
Westfield Insurance Foundation was established in 2005 as an independent private foundation endowed by Westfield. In keeping with the values of Westfield, the Foundation exists to be a dedicated corporate citizen, directing our resources to areas that complement the work we do every day – disaster recovery, family stability, safety and economic development. Within each area, we prioritize addressing burdens suffered as a result of systemic racism. The Foundation donates over $3 million annually to a variety of charities.
About Westfield
Westfield was founded in 1848 by a small group of hard-working farmers who believed in the promise of the future and the power of the individual. Today, as one of the nation’s leading property and casualty (P&C) companies, we remain true to their vision and are dedicated to your protection and prosperity and to the progress of our community. Visit westfieldinsurance.com for more information.
Amanda Leightner, Executive Director of Collider Foundation, Juliana Silva, Director of Navigation at Collider Foundation, Taylor Gilbert, Agent at Atlas Insurance Brokers, Emily Demers, Director of Operations at Atlas Insurance Brokers, and Corrie Strommen, Director of Communications at Collider Foundation.
If you have any questions, please contact Emily Demers, Director of Operations at Atlas Insurance Brokers, or Amanda Leightner, Executive Director of Collider Foundation.
Agency Contact:
Name: Amanda Leighter
Agency: Collider Foundation
Telephone: (507) 722-0306
Email: amanda@collider.mn
Agency Contact:
Name: Emily Demers
Agency: Atlas Insurance Brokers
Telephone: (507) 252-8720
Email: emilyd@aibme.com
Collider Foundation Quarterly Report
Want to support Collider’s ongoing work with the Rochester entrepreneurial community? Follow this link to donate!
Providing Educational Support for Entrepreneurs Through CO.STARTERS and Launch into Prosperity
Collider Foundation believes that the support, education, and growth of our entrepreneurial ecosystem is a pathway to a more prosperous and inclusive future for the Rochester community. We as an organization aim to identify and assist local innovators in overcoming barriers to success by empowering an impactful, inclusive, and entrepreneur-first ecosystem.
We have been excited to have the opportunity to fulfill our mission through facilitating two CO.STARTERS cohorts in the last year, with a third cohort to begin in July of this year. CO.STARTERS is a 10-week long program that equips starters of all kinds with the insights, relationships, and tools needed to turn business ideas into action. All you need to have to join the program is: an idea, openness to question, shape and fine-tune that idea, and willingness to talk about your idea with others.
Starters who participate enter into a local facilitator-led, collaborative process with a small and supportive group of like-minded peers. Working together, they develop and fine-tune their ideas, critically examining every part and determining next steps through real-time feedback from people in the community. This approach enables entrepreneurs to rapidly uncover flaws in their concepts and find viable models more quickly.
Local entrepreneurs gather for a CO.STARTERS learning session.
In our most recent cohort, six starters completed the program, 67% of which were women and 17% of which were BIPOC.
33% of these entrepreneurs used the course to think through their business ideas and did not have a product or service yet. 67% of the companies were more advanced and had a working product or service. They used the course to launch a new product or service or to think more deeply about their marketing and customer base.
The types of businesses included in this cohort covered a range of industries, including construction, manufacturing, and technology development.
Individuals from our first CO.STARTERS cohort last year have reported growth in the sixth months that have elapsed since participating in the program.
From the group, 50% have launched a new product or service or had significantly updated a product or service during those six months. They have an average of one to five employees and have created three new jobs within the last six months. They have also all had financial investments into their businesses in the last six months, mostly self, bank loans, and friends or family ranging in amounts of $10K-250K.
Additionally, all participants volunteered some of their time in the entrepreneurial community over the past six months, mainly through speaking to business classes or cohorts and mentoring other entrepreneurs.
“The Co.Starters program facilitated by Collider was a fantastic experience. It provided valuable insights on how to grow my business, as well as a peer group to discuss ideas and share experiences with. Hearing from previous Co.Starters participants was also incredibly useful. I finished the program with a network of mentors, peers, and resources that will be with me far into the future. I look forward to the chance to help future cohorts in their journeys as well." Levi Sauerbrie (2023 CO.STARTERS participant)
All CO.STARTERS cohorts wrap up the 10-week program with The Collider Cup, which provides an opportunity for them to share their business ideas with the community, participate in a pitch competition for a cash prize, as well as celebrate their accomplishment and growth as entrepreneurs.
2023 Collider Cup winners, Levi Sauerbrie and Chelsi Low.
April 2023 Collider Cup winner, Chelsi Low, reflected on her experience with CO.STARTERS saying,
“Participating in CO.STARTERS was very beneficial and may be the reason I decided to take the direction I have with my business. I’m a person of ideas and always tend to think into the future instead of living in the moment. It was so helpful to be in an atmosphere of structure and support to work through my ideas. I really enjoyed the opportunity to engage with an in-person cohort. Even though we were all working on different things, having other people as a sounding board was incredible. It really forced me to pick something to focus on and choose my direction.”
Following the CO.STARTERS cohort, there are also a variety of supports in place for building upon what the entrepreneurs learned during their time with CO.STARTERS and to continue their business journey within the community. This includes a year of grant and donation supported coworking memberships within our shared office space, so CO.STARTERS graduates can continue to surround themselves and learn from other entrepreneurs in the community. They also continue to gain support from Collider staff to talk through challenges they are facing and to gain access to additional resources, such as pro bono legal services, to accelerate their growth.
In addition, we are excited to enter into a brand new partnership with the Southern Minnesota Initiative Foundation (SMIF), called Launch into Prosperity, to provide an additional next level of support for CO.STARTERS grads. After thinking through key pieces of the business during CO.STARTERS, entrepreneurs who identify as BIPOC or with other underserved groups have the opportunity to apply to continue their support through SMIF’s Prosperity Initiative. During this time, the entrepreneur meets with a business strategist to set individualized goals to help the business grow through high touch, technical support for the next six to nine months. Through this partnership, entrepreneurs are supported for at least the first year of their business growth to really help them start, scale, and maintain their business within our region.
We are so excited to move forward into our next cohort and assist another group of emerging entrepreneurs with their business journeys! If you feel that CO.STARTERS would be a good fit for you or someone you know, please feel free to reach out to our team to learn more, or register at https://www.collider.mn/costarters. Eligible starters can also apply to the program directly through SMIF’s website.
2022 and 2023 CO.STARTERS participants gather for the Collider Cup 2023.
CO.STARTERS at Collider is supported by Think Mutual Bank, Fredrikson & Byron, Mayo Clinic, the Otto Bremer Trust, Minnwest Bank, the Southeast Minnesota Initiative Foundation, Red Wing Ignite, Atlas Insurance Brokers, and Launch Minnesota. Launch into Prosperity is a partnership with the Southern Minnesota Initiative Foundation and the Minnesota Department of Employment and Economic Development.
Tax Tips for Small Businesses
Now that tax season has passed, most of us are probably trying to forget the stress and anxiety often associated with filing taxes. Taxes are complicated, particularly for small businesses, and before you put them out of your mind for the year ahead, take a moment to look over these helpful tips to make the process a bit easier, the information more accurate, and the filing process less stress-inducing moving forward!
Keep accurate records.
We’ve heard it countless times from small business owners; paperwork is the worst. Many individuals have a wide range of skills and strengths that contribute to the business that they’ve started, however, those skills often do not pertain to the somewhat arduous process of record keeping.
Leading up to tax season, maintaining thorough and accurate records of all your business associated financial transactions is crucial. This includes records of sales, expenses, and receipts. Gathering and keeping track of this information will make it infinitely easier to track your deductions and ensure compliance with tax regulations.
Not keeping accurate records leaves you at risk of submitting an inaccurate tax return, being audited, and losing valuable deductions which could save you a lot of money.
Unsure of how to go about tracking your sales and business related expenses? Here are a few ways to get started!
Use accounting software. You can track your business expenses with the help of several accounting software options such as QuickBooks, Freshbooks, or Xero. These programs allow you to categorize expenses, track payments, and generate reports.
Use a dedicated credit card or bank account for your business expenses. This makes it easier to separate personal and business expenses as well as simplify tracking and categorization.
Keep physical copies of your receipts and organize them in a file or folder. This helps to keep track of expenses and provides backup information in case of an audit.
Track your expenses in real-time. Do your best to record expenses as they occur through a mobile app or spreadsheet to avoid losing receipts or getting behind on your record keeping.
Keep a mileage log if your business involves driving. Tracking mileage for all business-related trips can contribute to helpful deductions when filing in the future.
Plan time into your schedule to review your expenses. This can help you catch errors early and assess areas where you can cut costs for your business.
While detailed record keeping can seem tedious, it is a relatively simple way to make filing your taxes much easier in the long run.
Understand your tax obligations.
Tax obligations can vary from business to business and state to state, so it is important to know what is required of you going into tax season. Be aware of the various taxes your business is required to pay, such as income tax, sales tax, and payroll taxes. Make sure that you are collecting and remitting these taxes on time and in accordance with relevant laws and regulations.
Because tax regulations can change from year to year as well, make a point to stay up to date and informed about changes in tax laws and regulations which may affect your business. This can help you avoid penalties and ensure that you’re always in compliance with current regulations.
Minnesota requires businesses to pay state income tax, sales tax, and withholding tax. Make sure you understand your obligations for each and that you submit the necessary forms and payments on time.
Claim all eligible deductions.
Do yourself a favor and be sure to claim all deductions you’re entitled to, such as business related expenses, travel expenses, and home office deductions. This can help lower your tax bill and ultimately improve your bottom line.
Here are some examples of tax deductions for small businesses that could be claimed on your return:
Your car, if you use your personal vehicle for business purposes (mileage rates)
A home office, if you operate out of your home
Insurance premiums
Business books and educational materials
Office supplies
Business travel expenses, including meals, entertainment, and tips
An office coffee service
Tax preparation resources
Office equipment
Consider hiring a tax professional or an accountant.
You can’t be an expert on everything, and chances are that you do not have the time or resources to become well versed in accounting and taxes on top of being a small business owner. You can, however, utilize the help of a tax professional or an accountant to help you navigate the complexities of tax laws and ensure that you're complying with all regulations.
If you already utilize the assistance of an accountant, make sure that you’re working together throughout the year to track your income and expenses, spot potential cash flow issues, as well as monitor your gross and net profits. Good accounting is crucial for the growth and survival of small businesses, and only working with your accountant during tax season is a missed opportunity. Seeking the advice of a good accountant can help you make the wisest financial decisions for yourself and your business.
How do you go about finding a good financial expert or tax professional? First of all, contact them in the off-season; don’t wait until spring to find one. Many tax professionals are overwhelmed with inquiries in the spring and may not be able to take on new clients, or have the time to give you their best service. Getting to them early ensures you get the help you need.
Additionally, go into your first meeting or consultation with some precise questions in mind, such as:
Are you licensed to practice in this state?
How long have you been practicing?
Do you have knowledge of or experience with small businesses in my industry?
What is the cost breakdown for the services you provide?
Do you provide year-round support?
What happens if I am audited?
Once you’ve established an individual or company that will be a good fit for you and they’ve become familiarized with your business, ask some more questions. For example:
What are some achievable business goals I can set?
Should any changes be made to my employee benefits program?
Am I missing any potential tax deductions?
Are there any carryover losses or set-up expenses I can claim?
What kind of structure is best for my business?
It can be tempting to try to manage everything yourself as a small business owner, and hiring an accountant or tax professional can seem like an unnecessary added expense to your business. However, the peace of mind as well as the added expertise and knowledge of a professional can add value to your business that greatly outweighs the cost.
Take advantage of potential tax credits and deductions.
Tax deductions and credits exist for small businesses on both the state and federal level. Be sure to do your research and make sure you aren’t missing out on valuable resources for your business.
If you’re a small business that is investing in capital equipment or making improvements to your property, you may be eligible for the Small Business Investment Credit, which can help reduce your tax liability.
Minnesota offers various deductions that pertain to small businesses, such as expenses relating to research and development, job training, and equipment purchases. Minnesota also offers the Angel Investment Tax Credit to investors who invest in small businesses with high growth potential. This credit can help attract investment and support your growth if your business meets the eligibility criteria.
IRS Credits and Deductions for Businesses
While planning ahead for tax season, working with an accountant or tax professional, researching regulations and tax credits, and keeping meticulous records are not the most glamorous or enjoyable tasks; they can ensure that you go into filing your taxes with less stress and a lot more confidence moving forward.