A hefty American stout. A biting English bitter. A robust German Bock. A fine Irish Red. A citrusy Belgian witbier. Beer. You love them all. So much so, you decided to make your own. You wanted to experiment, create new brews, and share your concoctions with your friends.
You discovered you possessed a real knack for it. Your friends wanted more. Their friends wanted more. You had to ask for donations. You could no longer afford to dole out free beer on such a large scale.
One warm evening, as you chatted with friends over a particularly fine batch of pale ale, someone suggested you start your own business, your own brewery.
Fast forward three years later and you’ve got a little hole-in-the-wall brewpub. Almost literally. The brewery in back is smaller than the three-table, four-stool barroom out front. Business is pouring in. You need a bigger bar - and brewery.
You’ve also had local market retailers knocking on your door. You need to expand. Though you’re hopped up on profits, you’re concerned about the expense: a larger facility, the equipment, the potential remodeling, upgrades, etc.
So what is a budding brewer to do in this situation? Or any expansion situation, really? Whether you want to purchase your first property, upgrade to a larger retail establishment, open another location, or expand your brewing facilities, more money is what you need – particularly if you don’t want to sell stakes in your business to a holding company or partner with a larger brewery.
Tax incentives and credits serve up a barrel-full of money-saving options. America’s love for craft beer is boiling over, and federal and state governments are stepping up to pitch them ingredients for success.
New York state shows its love for craft brewers with a slew of tax incentives and credits, such as the Domestic Production Activities Deduction (DPAD), Craft Beverage Modernization and Tax Reform Act, and the New York Alcoholic Beverage Production Credit, just to name a few.
But what if you’re not mashing in NY?
It’s the Yeast You Can Do
Federal cost segregation tax strategy is a good pint with which to begin. It’s designed to help building owners and renters identify tax-saving opportunities that will increase cash flow through accelerated depreciation and federal and state income tax deferral.
Qualifying assets within recently constructed, renovated, or purchase property include:
- Building Components - cabinets/millwork, decorative lighting, carpet, specialty plumbing
- Site Work – landscaping, parking lot striping, exterior sign structures, security lighting poles
- Building Structure – roofing, escalators, HVAC, exterior façade, plumbing
Typically, commercial property holds a depreciable life of 39 years. But a comprehensive cost segregation study can attenuate that time frame for certain components to 5, 7, or 15 years. And new building additions as low $500,000 and properties with a base qualifying amount of $100,000 comply. So, one need not buy Colorado Rockies-sized property to sample the lucrative benefit of cost segregation.
For example, a winery was purchased for $6,000,000. The owners were able to filter $2,914,041 in additional depreciation, which infused a cash flow of $1,078,195.
Like all alcohol production and sales, the beer business is a highly taxed industry. The good news: there exists tremendous potential for tax savings. Knowing where to look and how to capture all available benefits is the key to "high gravity" cost savings.
For instance, many of brewery entrepreneurs’ activities related to expansion may also qualify for research and development (R&D) tax credits.
Filtering It All Out
The brewer entrepreneurs have fermented a new passion for American taste buds. But to meet the full-bodied demand for their product and grow their business, many need a little extra "hop."
Cost segregation can rack up lucrative cash flow to help motivated brewers expand their businesses. Yet to properly concentrate on their craft, many can use a hand to help them "wort" out complicated tax regulations and the complexities inherent to cost segregation.
To produce the most accurate and lucrative cost segregation analysis, brewers should get a tax specialist on tap. Leave the beer to the brewer and taxes to the specialist – for the ‘malt’ success.