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Home Brew Forums > Home Brewing Beer > General Beer Discussion > Homebrew and Taxes
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Old 02-21-2008, 08:00 PM   #1
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Default Homebrew and Taxes

As I did my taxes this year and had to actually pay out rather than receive a refund for the first time in my life, a light bulb went off when I saw what you could itemize as deductions. Apparently, a hobby that is done in the likeness of a business can be used as an itemized deduction on taxes. When I saw this, the wheels started turning.

This is the hypothetic situation that came to mind and you tell me if you think that it holds some water:

We all know that you can't sell your homebrew without some sort of beer/liquor license, dependent on your state of residence. We also know that per adult in the household 100 gallons of beer can be made up to 200 gallons per year. However, what if you were not selling the beer but selling the recipes? You could obtain a business license (or incorporate) for a developmental or logistical business that specializes in the development of beer recipes for sale or for the purpose of writing a beer recipe cookbook of sorts. This could then make all of your homebrewing expenses deductible at the end of the year (equipment, ingredients, home office, brewing space etc.). Not only that but, you could potentially claim a loss for a number years in the event your business is not profitable. I don't see a legal issue here as long as you are legitimately trying to market your recipes in some fashion. The beer made is just a bi-product of your research, must be consumed and the spent grains can be recycled thus making you an environmentally safe company, which could reap more tax benefits for you.


I mentioned the hobby deduction before because that is what got this idea spinning. For a hobby to count it must operate as a business. The example given was a small farm that makes money...let's say $7500 in a year. That must be added to your income for the year. However, the expenses of that farm amount to about $7900 for the year. If this were a business, you could deduct all of those expenses and also claim $400 for a loss in simple terms. Since this is a hobby though, you can only deduct in expenses what you made thus canceling itself out and not benefiting you tax-wise. Basically, is was explained to me that a business claiming a loss for more than the set number of years a business can claim losses will then be deemed a hobby by your friendly IRS.

Anyway, do you guys think this is at all feasible? I already keep a careful watch over what I spend on brewing supplies and materials anyway.

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Old 02-21-2008, 08:05 PM   #2
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problem 1: Hobby losses are deductible only to the extent of profits from that same activity, they can not be used to off-set other profits.

edit...leeme expand:

"Basically, is was explained to me that a business claiming a loss for more than the set number of years a business can claim losses will then be deemed a hobby by your friendly IRS." sorta kinda. A quick trip to www.irs.gov can clear a lot of your confusion up.

Your hobby doesn't not have to be run like a business. Keep in mind the hobby loss provision was intended to allow relief for people who earn incidental income from a hobby they are engaged in; to allow them to "zero" out the income by using offsetting expenses generated by that hobby.

What you want is to have your homebrewing hobby declared a for-profit business to deduct your losses. The issue there is that you have to run it like a for-profit business and that would require legal compliance $$ and all sorts of headache. Right back where you started.

Just get it over with and commit tax fraud, drink a homebrew while you do it if you must to get the beer-taxes connection going.

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Old 02-21-2008, 08:06 PM   #3
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Any tax savings for me would not weigh against the audit red flags it would cause. Time wasted in an audit would eat up any savings for years.

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Old 02-21-2008, 08:26 PM   #4
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That's what your friendly CPA is for....you know, that one you were friends with in high school. They know all of the rules and can give "helpful" hints.

Operating a sole proprietorship basic business really isn't all that difficult. Yes, there is a bit more paperwork to fill out in the end but play it right and legal and it could greatly benefit you. You could even deduct the expenses for having a Super Bowl party by calling it a recipe tasting event...the possibilities are endless.

I hear what you're saying about being deemed a for-profit hobby but you actually have to turn profit something like 3 out of 5 years to call it that. If you don't, all losses claimed for that period can be retroactively charged to you next time around.

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Old 02-21-2008, 08:33 PM   #5
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Involving alcohol in your tax return is not a good idea IMO, regardless of what you may be able to gain from it. The potential attention from other government areas is probably not something that you want.

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Old 02-21-2008, 09:20 PM   #6
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Yeah ... ya gotta talk to a tax wonk about this. I'd hate to have you get the idea from listening to a bunch of half-sozzled mopes like me that this would be a fabulous money-saving opportunity, and then be looking at your mugshot on the front page of the paper by a picture of "The Man" driving a tank through your back fence.

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Old 02-21-2008, 10:04 PM   #7
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Has Al Capone taught you NOTHING?

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Old 02-22-2008, 03:19 AM   #8
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Here is my thought.

I had a good friend who was a film buff. He would see almost every movie that came out. As you can see, ticket prices add up. So . . . what if he were to start a blog as a movie critic doing a write up on every movie he sees. He sells advertising and google ads on his blog (i.e. legitimate business?) Perhaps he gets away with deducting the costs of movie tickets over and above his advertising revenue.

So . . . you start a homebrewing blog dedicated to developing recipes. You offer recipes on your blog and you sell advertising including google ads. Legitimate business?

I guess it depends on how aggressive you want to be, but it sounds like you might get close.

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Old 02-22-2008, 11:43 AM   #9
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Quote:
Originally Posted by CollinsBrew
I hear what you're saying about being deemed a for-profit hobby but you actually have to turn profit something like 3 out of 5 years to call it that. If you don't, all losses claimed for that period can be retroactively charged to you next time around.
You're one or the other..hobby (no profit motive) or business (profit motivated).


Rather than make wild assumptions that will wind up costing you in the end, go read up at the source:

http://www.irs.gov/newsroom/article/...169490,00.html
http://www.irs.gov/pub/irs-pdf/p535.pdf
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Old 02-22-2008, 03:46 PM   #10
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My point was, the hobby deduction got me thinking about how I could turn my fun, rather expensive hobby into a simple business that could benefit me in any way.

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