Are CBD Oil Purchases Tax Deductible? How to Categorize Buying Cannabidiol Products

With tax season just around the corner, it’s only smart for individuals to start wondering about possible tax deductible expenses. This is even more so for people who buy and use a lot of CBD oil. If you’re wondering if buying CBD oils can be tax deductible, the short answer is it yes, IF it was prescribed by a physician.

If you’re in doubt and need more clarification, we would suggest talking to a tax advisor before filing those taxes and adding the CBD oil purchases to your tax returns.

What the IRS Says About Medical Expense Related Deductibles

According to the IRS, tax payers are allowed to apply their tax deductibles to medical related expenses exceeding 7.5 percent of their adjusted gross income (AGI).

So, if for instance, your adjusted gross income is around $40,000, you can only deduct medical expenses exceeding 7.5 percent of $40,000 ($3000). And if it’s $60,000, that’ll come to $4,500. Anything less may not be subject to tax deductions.

To claim this, you’ll have to use the Itemized Deductions section (Schedule A) in Form 1040. Therefore, you’ll need to determine if your medical and CBD oil expenses are significant enough to fill this part of the form while filing your taxes.

Anything Specific About CBD Oils in the IRS Rules?

Well, that depends on whether it’s considered a medical expense or not. The IRS currently defines medical expenses as

“the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.”

The organization’s document called Publication 502, specifically provides a list of medical expenses that qualify for tax deductions and those that don’t. You’ll need to check the document to ascertain this.

But, based on our research, there’s nothing specific about CBD oil’s tax deductible properties –the document hasn’t been updated for that. The good news is that there’s information regarding nutritional supplements and marijuana products.

In the case of CBD oil and marijuana, the Publication 502 document’s “Controlled Substances” section contains information about the plant.

More specifically, it states that taxpayers cannot include medical marijuana-related expenses as they are not considered actual medical expenses. This is because, under federal law, marijuana is an illegal substance… according to the current documents.

However, the section on Nutritional supplements clearly states that you

“can’t include in medical expenses the cost of nutritional supplements, vitamins, herbal supplements, “natural medicines”, etc., unless they are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician.”

What Does this Mean for CBD Oil?

Does this mean that CBD oils can qualify as tax-deductible items if they are categorized as medically prescribed nutritional supplements category instead of marijuana? The answer is it might be possible.

The reality is that marijuana and its many products are currently “uncharted waters” right now. The IRS hasn’t updated their laws to include the fact that cannabis, hemp, marijuana and their many products are no long illegal, thanks to the recently signed 2018 Farm Bill.

Going by this new law, all marijuana related products are no longer under the controlled substances category. As a result, they might be qualified as “natural medicine” or nutritional supplements. But, until that is updated, this might still be an issue.

Once done though, it just might be possible for CBD oils to be tax deductible if they are prescribed as nutritional supplements to aid the improvement of specific health condition, by your physician.

This goes without saying that if you don’t have prescriptions for the CBD oils from your doctor, those expenses may not qualify for tax deductibility. However, you should talk to your tax advisor as they would be in the best position to give you proper tax advice.

Please note that all the aforementioned are only applicable in the US. If you live in Canada and have been wondering it CBD oils are tax deductible in Canada, the short answer is a definite yes.

All you need while filing your taxes with the Canada Revenue Agency (CRA), is evidence of purchase in the form of receipts from licensed and recognized dispensaries in the country.