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Tax tips for brewery owners – Updated!

October 21, 2014Chris Farmand

Tax tips for brewery owners
They say nothing is certain but death and taxes, so be sure you study up on how to take advantage of several tax provisions available to brewing businesses.

Editor’s note: We originally posted this story last year, but our resident CPA guru Chris Farmand received so much great feedback that we’ve updated it for next tax season. Check it out below.

As year end approaches, certain tax planning strategies should be in-motion for craft breweries. Proper planning could result in major tax savings for the business and owner. There are four tax saving provisions that apply to the beer manufacturing industry. My goal is to make you aware of these benefits, while understanding the actual calculations are complex and should performed by a CPA. It is important that your CPA understand these strategies so he or she can best advise on how to maximize them. The following provisions consist of three tax credits and one tax deduction:

  • FICA tip credit
  • Domestic production activity deduction
  • Research and development credit
  • State credit and incentives

FICA tip credit

For this credit to apply you must have tipped employees. Brewpubs and Microbreweries with taprooms, listen up. The easiest way to explain this is, reported tips are subject to FICA. You as the employer must match this FICA amount. Some tipped employees make a lot of money. What the credit does is, recapture some FICA paid for wages that exceed minimum wage. The calculation is quite complicated so just understand if you have tipped employees on a throughout the year, you probably qualify.

Domestic production activity deduction

Unlike a credit, this one has some limitations. This deduction says since you are manufacturing something on US soil and are paying wages, we will give you an additional deduction. How much? Up to 9 percent of qualified production activities. Qualified production activities include wages for production workers (brewhouse staff) and Cost of Good Sold to name a few. This deduction has a “use it or lose it” clause and is limited by net income. This one takes careful planning to maximize and depending on your size can return some serious dollars to the owners.

Research and development credit

This credit applies to any research and development you perform on premise. Research and development in a brewery? R&D can happen in most industries as long as you are trying to improve an existing process. Think test batches or designing new method to handle waste water. The R&D credit must meet a four part test to be valid:

1. Permitted Purpose – new or help existing process

2. Elimination of Uncertainty – purpose is to eliminate uncertainty

3. Process of Experimentation – systematic process to evaluate one or more alternatives

4. Technological in Nature – principles of physical, biological, engineering, or computer science.

State credits and incentives

Most states have a list of business tax credits and incentives. The goal of these are to attract new business or expand existing business within the state. Some examples are: Economic empowerment zones, hiring a veteran, manufacturing & technology focused businesses, to name a few. Most businesses fail to act on them simply because it takes effort to see what programs are available and apply to them. A listing of recent incentives can be researched at your specific states department of revenue website.

My advice on maximizing these opportunities is to not be complacent and ask the right questions. Most CPA’s should be familiar with calculating or researching these credits. Be proactive about these benefits. Investors love to see these credit help them too, they increase the credibility of their investment. Empower an assistant to take 30 minutes a month to research or make a call to see what is available. I can tell you from personal experience these provisions have translated to significant tax saving among fellow brewers.

Chirs Farmand Small Batch StandardChris Farmand is the founder of Small Batch Standard, a CPA firm helping craft breweries across North America. Chris has more than 10 years of tax and accounting experience, with the last four years dedicated to the craft brewing industry. Small Batch Standard believes brewery owners should have reliable financials while focusing on what they do best, making beer. He can be reached at [email protected].

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Reader Interactions

Comments

  1. stevegharmon says

    October 25, 2014 at 2:12 am

    RT @GregEkos: Don’t miss some great brewery tax tips from @cfarmand http://t.co/S4tc4LdI8G @craftbrewingbiz

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  2. Cockat00 says

    October 24, 2014 at 2:44 pm

    Tax tips for brewery owners – Updated! http://t.co/etPO1ulw87

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  3. BrewersLaw says

    October 23, 2014 at 2:48 pm

    RT @CraftBeerAttny: Tax Tips for Brewery Owners by Chris Farmand #beerlaw http://t.co/kC9J972YH5

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  4. MICraftBeerCult says

    October 23, 2014 at 9:10 am

    Tax tips for brewery owners – Updated! http://t.co/fcT7bJaeFH

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  5. mrbrewreview says

    October 22, 2014 at 8:40 pm

    Tax tips for brewery owners – Updated! http://t.co/qDSUSyPyLj via @craftbrewingbiz

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  6. CraftBeerAttny says

    October 22, 2014 at 8:16 pm

    Tax Tips for Brewery Owners by Chris Farmand #beerlaw http://t.co/kC9J972YH5

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  7. cfarmand says

    October 22, 2014 at 6:14 pm

    RT @GregEkos: Don’t miss some great brewery tax tips from @cfarmand http://t.co/S4tc4LdI8G @craftbrewingbiz

    Log in to Reply
  8. ekosbrewmaster says

    October 22, 2014 at 5:44 pm

    Check out these tax saving tips from @cfarmand on @CraftBrewingBiz http://t.co/ILdcT59z81 #craftbeer

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  9. GregEkos says

    October 22, 2014 at 5:07 pm

    Don’t miss some great brewery tax tips from @cfarmand http://t.co/S4tc4LdI8G @craftbrewingbiz

    Log in to Reply
  10. RegnierIns says

    October 22, 2014 at 3:35 pm

    Tax tips for #brewery owners. http://t.co/uI7kDOPlQj via @craftbrewingbiz

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  11. dcbrewlaw says

    October 22, 2014 at 11:53 am

    Check out this article by Brewery CPA Chris Farmand on tax tips for brewery owners http://t.co/Odtj9kCusi

    Log in to Reply
  12. SoCalBeerBiz says

    October 11, 2013 at 4:53 pm

    RT @HastingsBeerFan: Happy #Friday! 11 more days until #Breweries in Growth

    Three tax tips for #brewery owners – #CraftBrewing Business ht…

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  13. BlakeShakes says

    October 11, 2013 at 12:02 pm

    RT @CraftBrewingBiz “Three tax tips for brewery owners   Chris Farmand of Small Batch Standard breaks them down.” http://t.co/v30ptTD1I1

    Log in to Reply
  14. HastingsBeerFan says

    October 11, 2013 at 11:18 am

    Happy #Friday! 11 more days until #Breweries in Growth

    Three tax tips for #brewery owners – #CraftBrewing Business http://t.co/2BPSP9wF3p

    Log in to Reply
  15. DenverBeerGuy says

    October 11, 2013 at 10:24 am

    RT @kathy_carr: Three tax tips for craft brewers via @CraftBrewingBiz http://t.co/UamED62I9i

    Log in to Reply
  16. kathy_carr says

    October 11, 2013 at 10:15 am

    Three tax tips for craft brewers via @CraftBrewingBiz http://t.co/UamED62I9i

    Log in to Reply
  17. Beveragetrade says

    October 10, 2013 at 7:57 pm

    RT @CraftBrewingBiz: Three tax tips for brewery owners http://t.co/LvWn1Bkq1d Chris Farmand of Small Batch Standard breaks them down.

    Log in to Reply
  18. cfarmand says

    October 10, 2013 at 7:57 pm

    Three tax tips for brewery owners – Craft Brewing Business http://t.co/gqvtsNaLiF via @craftbrewingbiz

    Log in to Reply
  19. TheBottleWrench says

    October 10, 2013 at 3:41 pm

    RT @CraftBrewingBiz: Three tax tips for brewery owners http://t.co/LvWn1Bkq1d Chris Farmand of Small Batch Standard breaks them down.

    Log in to Reply

Trackbacks

  1. 4 Tax Savings for Beer Manufacturers | BeerRun says:
    November 10, 2014 at 5:10 pm

    […] These tips come from BeerRun advocate and reseller Chris Farmand, a CPA who focuses on the needs of craft breweries in his business, Small Batch Standard. To learn more about the details of these tips, please check out the original article. […]

    Log in to Reply
  2. Brewery Tax Tips says:
    October 22, 2014 at 12:00 pm

    […] <<Full Article Here>> […]

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