5 Brewery Tax Saving Tips

Today, the combination of innovative flavors and unique branding has led to the success of the craft beer industry. With an ever-growing demand for more and more unique varieties, it’s no mystery why breweries are popping up nationwide. Whether breweries are established or just getting off the ground, brewers need to know what options there are regarding brewery tax benefits.

Like any business, producing and retaining enough of your profit is critical to sustainability, and beer is no different. Here is a list of 5 brewery tax tips to help you maximize your wealth and keep those taps flowing.

Do you think that research and development only happen at tech companies? Think again. Breweries are constantly innovating the brewing process, developing new or improved product formulas, and testing new procedures — all qualifying R&D activities. The tax credit can be applied to expenses associated with any R&D activities, including wages, supplies, and services used during the process.

In addition, small businesses may apply their R&D credit to offset payroll taxes. Like many start-ups, breweries often struggle to make and sustain a profit in their first few years in business. While not profitable, the odds are they still have payroll to maintain. This legislation allows small businesses and breweries to put those R&D credits toward payroll taxes rather than income taxes to realize an immediate cash benefit.

The R&D qualification process is tricky and requires a four-part eligibility test. For this reason, it’s recommended that you have extremely organized and accurate documentation of the costs associated with your R&D activities. Qualifying activities include anything developed or improved, such as bottling processes, preservative chemicals, filtration methods, flavor or aroma profiles, or other advances in methodology or procedure.

Our Research & Development Tax Credit Team is available to support you through this process, and more information is available on our R&D service page.

Charitable giving is an exceptional way to save some cash throughout the year. Contrary to popular belief, charitable giving can mean donating physical items rather than straight cash. Like other businesses with an inventory supply, breweries often have an excess of inventory or out-of-season beer throughout the year.

Let’s say your brewery makes a delightful winter ale, but come springtime, consumers no longer crave those comforting notes of nutmeg and cinnamon. By donating this excess beer to a qualified charitable non-profit for a fundraising event, you could receive a brewery tax deduction. The beer must be in consumable condition and must be donated to a registered 501(c)(3) to qualify.

Note: Be sure to keep documentation of the donation and a signed form from the charity to receive the tax benefit.

For brewpubs, customer tips are a critical part of employee compensation. The FICA tip credit allows brewpubs to claim a credit on their federal taxes, including social security and Medicare. Note that this credit only applies to tips that put the employee above the national minimum wage ($7.25 per hour). Employers are responsible for 7.65% of FICA payroll taxes, making this credit a huge asset when properly utilized. A simple year-end payroll report will showcase all the necessary information to qualify for this credit.

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year. To encourage business growth and investing, this deduction is one of the few that helps small businesses grow their operation.

While businesses used to write off a portion of the purchase each year as a part of depreciation, this deduction allows businesses to write off the entire purchase price for the year they buy it (up to $1,080,000 in 2022). This covers everything from software, corporate vehicles, and machinery.

Bonus depreciation is also a great way to quickly recover the cost of capital assets. Essentially, bonus depreciation allows breweries to purchase equipment and expense the asset immediately in return. Bonus depreciation allows for an immediate deduction of 100% of the cost of the assets, for assets placed in service by December 31, 2022.

Since brewing naturally requires a large amount of production equipment, most brewing equipment will qualify for manufacturing sales tax exemption. The exemption allows a 4.1875% sales tax rate reduction on qualified production purchases. Claiming the reduced rate is simple and well worth the benefit. When making a qualified purchase or lease, simply provide a Partial Exemption Certificate for Manufacturing Equipment to the seller. 

Although the exemption began in July 2014, it’s not too late to get a refund for the sales tax exemption that could have been applied to prior qualifying purchases. Consult with your tax advisor to see about getting a refund for any past overpaid sales tax.

Whether it’s a bold new flavor, a more economic bottling procedure, or a new facility to expand your operation capacity, take advantage of the many brewery tax incentives offered. If you want to learn more about how your brewery can start saving cash, contact us.