This article consists of a set of questions asked by our readers being answered by Chris Farmand, a CPA who helps breweries with several accounting and accounting-related issues (view his full bio below). This is the third article in a continuing series of articles Ask a CPA where Chris provides a few basic tips for breweries to establish and maintain effective accounting systems. Due to an overwhelming amount of responses, this is the second half of Part I.
A lot of breweries give their grain to local farmers, co-op's, or community compost. Is there any way to get a tax write off for this?
Donating your used grain to any farmer or co-op does not create a tax benefit. Unless the organization you are donating to is a 501(c)3 as defined by the Internal Revenue Service, then you may have a charitable contribution deduction.
What is the best way to account for and manage excise taxes in a brewpub?
By excise, I assume you are talking about the TTB and State taxes. The TTB is uniform for all breweries and brewpubs. Each state has their own rules, rates, and filing dates. This can be accounted for very easily if the proper procedures and systems are in place. I use a combination of the manufacturing software, POS, and accounting software to prepare the excise report. If you are not in a position to purchase manufacturing software, you will need to use Excel to track all this info.
What depreciation method is best for new brewing equipment and should it be depreciated differently or separately from other assets?
Fixed asset management is an area breweries should pay more attention to. Since the business is very capital (fixed asset) intensive, depreciation is going to play a major role on the profit and loss statement. The exact method of depreciation is best to be discussed with your tax professional because there is not a uniform answer. Some assets will be depreciated over straight line while others will use MACRS. Some will apply for bonus depreciation while others will not. This is a deeper tax planning issue.
I say calendar year. Unless there is something cyclical or seasonal about breweries that I am not aware of, stay calendar. Companies that are seasonal (resorts, destinations) will elect non calendar year ends to report their performance over their natural business cycle. Another caveat, if you choose fiscal year, it is likely you must adhere to calendar year filing deadlines for some activities such as payroll.
Don’t wing it, get your back-office set up right from the beginning. Document procedures, as you would in your brewhouse, so they are consistently followed. If this is foreign to you, find someone who knows the industry and can help. Embrace technology, it will make you smile. This technology will allow you to connect with professionals who knows the industry. Finally, do what you love.