Owning a Brewery: “Taxes, Bookkeeping and H.R., Oh My!”

By: Steve Treglia, CPA

The past few years have seen a renaissance in the beer industry, with numerous new local breweries opening throughout the state and region, offering spaces for people to gather, socialize and enjoy the breweries popping up around them. It has become a brand new industry for the area, as these businesses no doubt do more than their fair share to contribute to the local economy.

Brewing great beer, however, has to be considered the easy part when it comes to opening and operating a brewery, and it’s certainly the more enjoyable part. Because with it comes the accounting and bookkeeping, the tax laws, the human resources duties and other administrative work—this is work no one generally wants to do but, unfortunately, has to be done. And not only can it be time consuming and confusing, no matter the brewery’s size, it can also require additional manpower which, inevitably, means additional spending.

From a tax perspective, breweries need to consider:

·      There are certain tax credits available that many small businesses and breweries are unaware of and therefore go unutilized, including the tax benefits related to fixed assets and startup costs.

·      Many startup companies may be in a loss position for the first year or two due to initial startup costs—and with new tax provisions, these losses can be handled differently, depending on the size of the business. 

·      Given that many small business owners may own other companies or portions of other companies, those different ownerships under the new tax law can have varying implications and need to be considered from a personal tax standpoint. 

From a bookkeeping perspective, the most common issues and traps for breweries, as well as any small businesses, are as follows: 

·      These are time consuming burdens on owners that can take away from what’s most important

·      Hiring bookkeeping personnel, even part-time, may be costly if benefits and other pay is involved and may not be necessary when there are other cheaper third-party solutions

·      Hiring a quick fix bookkeeper that isn’t qualified for the future growth of the business 

·      Determining which software is best for the company, based on its size and its future plans

Finally there is the human resources perspective; many breweries struggle in this area and with the administrative side of things as they begin to grow and need the following:

·      Creating hiring and firing policies to protect the company from lawsuits

·      Creating employee handbooks / code of conduct and other business wide policies

·      Offering benefit plans or other incentives to employees and drafting these agreements

None of this, of course, should deter people from their dreams of owning and operating a brewery; it is a widely expanding field that has seen much success for those who do it the right way. Having the right team in place, both internally and externally, is imperative. It goes way beyond expertise in making and selling beer, and into the realm of tax policy, human resources functions, bookkeeping and auditing. It’s a business and should be treated like any other one; watching out for the above traps and utilizing a trusted advisor or third party at times will go a long way towards making it a successful one.

Steve Treglia, CPA, is a manager with BlumShapiro, the largest regional business advisory firm based in New England, with offices in Connecticut, Massachusetts and Rhode Island. The firm, with a team of over 500, offers a diversity of services, which include auditing, accounting, tax and business advisory services such as HR and bookkeeping. Blum serves a wide range of privately held companies, government and non-profit organizations and provides non-audit services for publicly traded companies. To learn more visit us at blumshapiro.com.

How Tax Reform Impacts Your Brewery

While watching congress has become a comedy show and people’s feelings on tax reform is all over the place, let’s take a look at some items that may be relevant to your brewery, once the president signs the Tax Cuts and Jobs Act into law. Note: this blog post only highlights some of the changes. Please consult your tax advisor and schedule a time to discuss planning and other changes, as well to maximizes your benefits under the new tax law.

1.     Most important, the new tax law included the Craft Beverage Modernization and Tax Reform Act (CBMTRA) which the National Brewers Association has been working on for almost ten years! This reduces your federal excise tax on beer from $7 per barrel, to $3.50 per barrel, on the first 60,000 barrels produced by domestic brewers who produce less than two million barrels annually. It also allows for you to be more creative and collaborate with your peers by the removal of tax between bonded facilities. These changes will be effective January 1, 2018, so remember not to over pay when doing your BROP.

2.     For small brewers with less complex operations, who operate tap rooms and turn inventory fast, or brewers who are just getting started, the new law makes your business tax return easier. If your gross receipts are $25 million or less during the preceding three years, you could be exempt from the complex inventory and accrual rules that were once required by the IRS. Not only could this help accelerate deductions, it can reduce your year-end tax preparation bill as there is less work to be done by your CPA.

3.     The new tax law also expands the small business exception for UNICAP by increasing the gross receipts test from $10 million to $25 million and removes the interest charge for the aging period of your beer. Again, this benefit is another way to help reduce the complexity of your tax return and potentially accelerate deductions for indirect inventory costs that were once required to be capitalized as part of inventory. Brewers who have an extensive barrel aging program or age beer for more than a year will most certainly benefit from this.

4.     Accelerated deduction under section 179 has been increased. Under old law, your accelerated deduction was limited to $500,000, reduced by the cost of eligible property placed in service that exceeded $2 million. The new law raises, subject to inflation adjustments, the limit from $500,000 to $1,000,000 and the start of phase down amounts is raised from $2 million to $2.5 million.

5.     Bonus depreciation, another good benefit that got an overhaul also. Instead of taking 50% of the cost on eligible property, bonus depreciation has increased to 100% for property placed in service after Sept 27. 2017 and before Jan 1, 2023. NOTE – consult your tax advisor on the best strategies to utilize 179 and bonus. Sometimes, it may not make sense to go gung-ho on these if you anticipate profit growth in future years with a slowdown in your CAPEX spending.

6.     Your business NOLS got a makeover! NOL Deductions are now limited to 80% of taxable income and you can no longer carry them back, but you can carry them forward indefinitely. 

7.     There is a 20% deduction for qualified business income for noncorporate taxpayers (LLC’s taxed as a partnership for example), subject to limitations. Consult your tax advisor now for planning opportunities as there are some significant complexities surrounding this substantial new deduction.

8.     While not a win, the new tax law repeals the domestic production activity credit that many breweries take. This credit allowed certain breweries to take a deduction equal to 9% of the lessor of your qualified production activities income or taxable income for the tax year. BOO!

Again, not an extensive listing of all the changes that were signed into law under tax reform, but the above can have a significant impact on your operations. Please contact your tax advisor to start planning on how to maximize these benefits.

Cheers,
Robert Babine, CPA
Edelstein & Company