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Brewing Benefits

By: Taylor Kotas, R&D Tax Credit Consultant at Leyton

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Beer drinkers have had a significant reason to raise their glass and rejoice because new craft breweries open their doors across the US every day. The significant growth in the number of breweries year after year has created an environment where, as a brewer, you cannot sit still.  Innovation has become the lifeblood to brewing success.

Innovation can come from anywhere within a brewery – recipes, label artwork, unique taproom environments, production line processes.  However, certain types of innovation can benefit the brewery in more ways than originally intended, and one of the more surprising ways is by lowering income and payroll taxes.  

Breweries can reduce tax liability through the Credit for Increasing Research Activities, which is both a Federal and Massachusetts State Credit.  Although you might not think that breweries perform R&D, or at least not enough to be significant, necessary day-to-day operations are packed with R&D eligible activities.

From brewing and releasing new beers to incorporating new equipment into a production line, both have aspects of R&D that breweries can monetize through the R&D Credit.  For these R&D activities you can recapture the financial investments in raw materials such as hops, fruit infusion varietals, even cans, as well as the investment of employees’ time performing, supervising and supporting the R&D.

There is no doubt that a number of breweries across Massachusetts are already taking advantage of the R&D Credit, but this innovation incentive has flown under the radar for decades because it wasn’t a permanent tax credit until 2015.  The PATH Act changed everything - it established the permanence of the R&D Tax Credit so breweries can build it into their financial plans year on year and rely on it to assist cash flow.  

The Federal R&D Credit allows breweries to claim for R&D related expenses in the current tax year, as well as retroactively for the past three (3) years, making the first time you claim potentiallyfour timesmore lucrative than a single year claim.  This credit allows businesses to reduce, or potentially eliminate income tax liability and provide cash refunds for overpaid tax liability when you claim retroactively.  

With the capital investment required to open a brewery, it might take a couple years to be profitable so the standard R&D Credit will not give you an immediate benefit. Fortunately, for the newer breweries, there is a startup version of the R&D Credit.  Rather than reducing income tax liability, you can claim the Federal Payroll Credit to reduce the brewery’s payroll tax liability, which is generated from having W2 employees and is often one of the earliest expenses that a craft brewery incurs.

Being located in Massachusetts also has its perks because the state credit is one of the most generous across the US.  It operates in a similar manner to the standard R&D Credit, but rather than reducing income tax liability, it allows you to lower your excise tax liability.

With the number of breweries growing not only in Massachusetts, but across the entire US, the need to innovate continues to increase. If you innovate to stay at the forefront of your industry, you need to take advantage of the tax incentives that are out there.  It can sound almost too good to be true, but, in reality, you’re brewing more than just beer, you’re brewing tax benefits too!  

Lifestyle Creep is a Slippery Slope

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By: Rich LeBranti

Suddenly you’re paying for a house that is too big, or a lease on a pickup truck you don’t use or just a membership to that fancy gym that you haven’t had the time to take advantage of yet. If your regular expenses are being paid for by credit cards or you can’t seem to save money at the end of each month, you might look toward “lifestyle creep” as the culprit. While it is easy to understand what lifestyle creep is and how it happens, it is still dangerously common among young professionals and those midway through their careers. 

Lifestyle creep or lifestyle inflation happens when you begin to earn more, and your spending increases right along with those paychecks. A new pair of shoes, a nicer apartment, a fancy car. These types of splurges are just the type of choices made by those who are falling victim to lifestyle creep. While, on its face there is nothing wrong with improving your quality of life as you begin to earn more, it is monumentally important that you have budgeted for your existing expenses, have a three-month emergency fund and have made a plan for saving for your retirement. 

Since about 2015, financial advisors have been using a time horizon of 100 years old to plan for their clients’ retirement. That is a lot of years past the time you may be planning to retire. With that comes rising medical costs as you age, inflation and the unknown of how you’d like to live in retirement and what you’d like to experience (and what it all costs). Planning for, saving for and investing in your retirement savings accounts is paramount to protecting your well-being in retirement. 

Lifestyle creep doesn’t happen overnight. Sometimes it’s hard for people to notice that it is even happening until suddenly they’re over extended financially. Putting off saving in order spend on the things that you want or feel you need right now is a slippery slope and suddenly you may find yourself way behind your goal when it comes to your retirement plan.

When your expenses equal your income and there is no room for savings, you are putting yourself in a position where you don’t have any buffer when something comes up that you really do need money for. That is usually when people begin getting into debt. Using credit cards to pay for monthly expenses or using credit cards to fund unexpected large expenses and not being able to pay them off completely each month is the risk. The interest on your credit cards alone is now causing you to be paying 15% more for each item you buy. 

So, what can you do to avoid lifestyle creep? Here are three recommendations that we think curb the problem: 

1. Make a Budget

The only way to understand and change how you spend your money is by recording what you are spending and keeping track of it monthly. You must first put continuing and unavoidable expenses as the first priority (rent or mortgage, car payment, insurance, utilities, student loan payments, etc.). Then you must consider what you will need for household items like groceries, toiletries, cleaning products, pet food, etc. Once you have a handle on what those relatively fixed expenses are, then you need to determine what you will be saving each month for your emergency fund and for your retirement savings account whether it is a 401(k), IRA or another vehicle. Now is the fun part: Figuring out how and when to spend your disposable income! Our recommendation: Always choose experiences over stuff. Those memories last a lifetime. 

2. Try NOT to increase your expenses every time your income goes up.

Just because you’re making more money doesn’t mean you need to spend more, especially not immediately on frivolous items. It is good to set goals for hard earned wage increases and reward your good work with something that has true value or true necessity. You may be planning to get married, have a child, buy your first house or your first born is going to college in a few years. Using that raise as a vehicle for ramped up saving is a great way to curb your impulses and plan for a bright future.

3. The Gig Economy 

Having a side hustle or the opportunity to work freelance outside of your nine to five is a great way to earn extra cash and a great way to save if your paycheck and your expenses simply must stay neck and neck for the time being. According to a recent article in Forbes, the average side hustle earns workers about $8,000 per year in extra income. That would more than fully fund a Roth IRA for the year and not take a bite out of your paycheck. 

Spending on new toys (big or little), memberships you can’t really afford, and other frivolities can lead you to an outcome that may make you have regrets down the line. Prudence and patience are key to avoiding these common mistakes that lead to lifestyle creep. We hope that you take heed of our recommendations and that implementing them into your life helps you stay on the track to financial freedom. 

 

An Employment Lawyer’s Tips For Crafting a Job Application (Pun Definitely Intended)

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By: Brian Casaceli
Associate at Mirick O’Connell
Labor, Employment and Employee Benefits Group

Job applications can be an area with many traps for the unwary. Recruiting qualified applicants is a necessity for all employers – craft breweries included.  To assist in the hiring process, breweries should prepare job applications that elicit information needed to identify and evaluate qualified applicants.  In crafting a job application, breweries should be aware of state and federal employment laws governing what questions it may and, more importantly, may not, ask.  

What Can, And Should, Be Included In A Job Application 

Equal Employment Opportunity Statement

Every application should inform applicants that the brewery is an equal opportunity employer and will consider all applications for employment without regard to an applicant’s membership in a group or class protected by federal, state, or local law.  

Similarly, to ensure qualified individuals with a disability under state or federal law are afforded an equal employment opportunity to participate in the application process, breweries should  include a statement informing applicants to contact a designated individual at the brewery (i.e., the HR Manager) if they need a reasonable accommodation to complete the application process.   

Work History Questions

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            Breweries should ask applicants to list prior employers, the positions and dates held, hours worked per week, and the applicant’s reason for leaving.  Notably, when the application requests a candidate’s previous work experience, it should specifically inform the applicant that he/she may list any verified work performed on a volunteer basis. 

To the extent a brewery intends to conduct reference checks with prior employers the applicant identifies, the brewery should have the applicant specifically authorize his/her present and former employers to disclose to the brewery information regarding the applicant’s prior employment, and release all parties from any liability whatsoever resulting from such disclosure.   

 Education Questions

            Breweries may ask about the applicant’s educational background to the extent it is relevant to the requirements of the position for which the applicant is applying.  Questions about the name of the high school/GED, college/university, trade school, level of education obtained, location, area of study, and degrees earned are all appropriate.  Breweries should not, however, ask for graduation dates as such data could be used as a proxy to determine an applicant’s age and could provide fodder for an age discrimination claim from an applicant not chosen for the job. 

            If a brewery intends to conduct a check with an applicant’s educational institution, the applicant should authorize the institution to provide the brewery with pertinent information relative to the applicant, and release all parties from any liability whatsoever resulting from such disclosure.                  

            Questions Not to Ask on a Job Application or During an Interview

Questions About Personal Characteristics Protected by Law 

            The Federal Equal Employment Opportunity Commission (“EEOC”) recommends employers not ask applicants about personal characteristics protected by law, including race, color, religion, sex, pregnancy, national origin or age.  Brewers should also refrain from asking any similar questions during an interview with the applicant, or at any other point during the hiring process. 

            The EEOC further notes that job applications may not seek information concerning, and interviewers may not ask questions about, an applicant’s disability, questions that are likely to reveal whether an applicant has a disability, or questions that seek an applicant’s genetic information. 

Criminal History Questions

In 2010, Massachusetts enacted “ban the box” legislation that prohibits employers from asking applicants about their criminal history on the initial employment application.  Last summer, Massachusetts Attorney General Maura Healey warned seventeen employers in Massachusetts, and issued fines to four national employers with multiple locations in Massachusetts, for asking criminal history-related questions on initial job applications.  Given the Attorney General’s heightened enforcement of the law, craft breweries are well-advised to remove any criminal history related questions from their initial job applications. 

Massachusetts law does, however, permit an employer, in certain circumstances, to ask applicants about their criminal history after the initial job application, such as during an interview.  Before asking such questions, a brewery should seek advice of legal counsel.          

Salary History Questions 

On July 1, 2018, an amended version of the Massachusetts Equal Pay Act (“MEPA”) went into effect.  Except in limited circumstances, MEPA prohibits employers from asking applicants questions about their salary history at any point in the hiring process. Breweries may not, for example, inquire about the amount of money applicants make at their present job on an initial job application or during a subsequent in-person interview.  (Breweries may inquire about an applicant’s salary history in limited situations: (1) to confirm wage or salary history information voluntarily shared by the prospective employee; or (2) after an offer of employment with compensation has been made to the prospective employee.)   

Guidance from the Attorney General’s office advises employers that they may inquire about an applicant’s salary expectations (e.g. what the applicant is looking to make in the position for which they are applying).  To the extent such an inquiry is made, breweries must be careful not to ask the question in a way that is designed to elicit the employee’s salary history.     

Social Security Numbers

            Generally speaking, although employers are not legally precluded from asking applicants to provide their social security number on a job application, brewers should avoid collecting a social security number until after an offer of employment has been made and the information is needed to conduct a background and/or credit check.     

Lie Detector Tests

            Employers in Massachusetts may not require an applicant to undergo a lie detector test as a condition of employment or continued employment.  In fact, under Massachusetts law, all job applications must include the following statement:

It is unlawful in Massachusetts to require or administer a lie detector test as a condition of employment or continued employment.  An employer who violates this law shall be subject to criminal penalties and civil liability. 

Applicant’s Acknowledgment 

A job application should conclude by having the applicant review and acknowledge the following:

-      All of the information provided in the application is true, accurate and complete to the best of the applicant’s knowledge;

-      Omissions or false statements may result in withdrawal of a job offer or termination of employment if the applicant is hired;  

-      If offered employment at the brewery, the acceptance of such employment will not cause the applicant to violate any other agreement to which he/she is bound (i.e. a non-competition or non-disclosure agreement); 

-      To the extent the applicant is hired for employment, he/she will be an at-will employee and will have no contractual employment rights; and 

-      An offer of employment may be conditioned on the results of pre-employment drug screening, criminal records and/or background check.  

To the extent that a brewery seeks a credit check or an investigative consumer report as part of a background check, the brewery must comply with applicable state law and the Federal Fair Credit Reporting Act which, in part, requires that the applicant be provided a separate disclosure and authorization form. Given the law’s technical requirements, breweries are advised to seek legal counsel when such checks are necessary. 

If a brewery intends to conduct pre-employment drug testing, the job application should explicitly identify this fact.  Giving advance notice to applicants that they may be required to undergo a drug test as part of the application process will create a diminished expectation of privacy, making it harder for an applicant to bring an invasion of privacy claim against a brewery.       

 Until next time, cheers!

 

Tips on Tap for Breweries on the Journey from Passion to Profit

Verrill Dana’s Breweries, Distilleries & Wineries Group Presents Tap Tips Podcast Mini-series

As the number of craft breweries across the country continues to grow, Verrill Dana’s Breweries, Distilleries & Wineries Group presents Tap Tips Podcast Miniseries to help brewers on the journey from passion to profit.

The Tap Tips Podcast Miniseries contains eight episodes to assist up-and-coming brewmasters and brewery owners to think critically about the issues affecting their business. These podcasts provide information and practical tips for navigating the various complex issues that may arise at any stage, from business formation to licensing to risk management.

This mini-series is part of Verrill Dana’s “Verrill Voices” podcast series, the next evolution of the firm’s longstanding efforts to keep business leaders up-to-date, which already include in-person seminars, webinars, email alerts, and blogs.

Episodes of the Tap Tips Podcast Mini-series can be found at www.verrilldana.com/taptipspodcast, in addition to on iTunes and SoundCloud

About Verrill DanaVerrill Dana, LLP is a full-service law firm conducting a nationwide practice from offices in Boston, Mass.; Portland and Augusta, Maine; Providence, R.I.; Westport, Conn.; and Washington, D.C. To learn more, visit www.verrilldana.com.