Is your business familiar with the unique tax breaks available in the brewery industry? AAFCPAs has provided for your convenience the top five tax insights that could have a major impact on reducing your tax burden:
Section 179 Depreciation
Breweries are capital intensive businesses, and equipment investments can be significant. Section 179 allows breweries to deduct the property placed in service in the year of acquisition as opposed to depreciating it over its useful life. There are dollar limitations on how much you may deduct in a single year, as well as business income limits, so we encourage you to consult your AAFCPAs tax partner.
Bonus Depreciation
Breweries may also take an additional 50% bonus depreciation deduction for qualifying property in the year the property is placed in service. There is no business income limitation for bonus depreciation, so in the early stages of business that often result in net operating losses, these can be carried forward to offset future taxable income.
Cost Segregation Studies
The shorter life span attributable to capital purchases, the quicker your company may realize the tax benefit. For build outs of your brewery, AAFCPAs recommends that you evaluate the benefits of a cost segregation study. In a cost segregation study, certain commercial building costs may be reclassified to shorten the depreciation time for taxation purposes, which reduces current income tax obligations. This may add up to substantial savings
Domestic Production Activities Deduction (DPAD)
The DPAD is a 9% deduction on qualified production activities, which could equate to a 3% reduction in your tax rate depending on the tax bracket the company falls in.
Research & Development Tax Credit
A credit is always better than a deduction, but AAFCPAs recommends a cost benefit analysis be performed to ensure it makes sense to take the credit. Breweries can qualify for R&D tax credits for certain activities such as improving brewing processes or creating a new beer.
When applying the above tax benefits, note that they are specific to brewing operations. The existence of ancillary businesses, such as restaurants, retail, etc. may impact your ability to utilize them. In addition, certain states make tax benefits available to brewers who locate within their borders.
If you have any questions or need additional information, please contact Dan Stanhope, CPA, MSA at (774) 512-4134, dstanhope@aafcpa.com.
Dan Stanhope, CPA, is a partner at AAFCPAs based in Westboro, Boston and Wellesley. He has over 12 years of experience providing tax, assurance and business advisory solutions to closely owned, privately-held businesses. Dan can be reached at 774-512-4134 and at dstanhope@aafcpa.com