Homebrewing as a tax write off?

Hey Guys,
Well my nanobrewery startup has a hit a big snag. After giving me "tenative approval" to use to my detached garage my city has now denied my request based on a local zoning ordinance. We are going to see what we can do to get the ordinance changed/modified. We are still trying to promote the brewery as much as possible. In fact we just had a really successful free tasting party where we sold brewery t-shirts and did quite well. I was even joking that I should just sell t-shirts and give away the beer. Much less hassle and just as much fun!! So essentiallly right now I own a company that makes and sells brewery t-shirts, hats, and mugs. Could I still write off grains, hops, etc.?. I am essentially using these tasting parties with free beer tastings to sell the brewery merchandise. My theory is that hosting these parties would be like taking a client out to lunch in hopes that they would buy your product, which in this case would be brewery merchandise. This is a legitimate business. I have a business license, state and federal tax ID, ficticious business name, etc...... Your thoughts?

I really don't know crap about taxes and such. I'm wondering if you could use the brewery as a "hobby". I think you are allowed to claim a hobby as a tax write off. Keep the merchandise part until you can get the zoning situation figured out. Rather than listen to me, ask an accountant, that way you will be less likely to end up behind bars and I mean metal bars.

sinse there is no way legal to trade barter or sell your beer i doubt it
Is it legal to give away homebrew at your location?

Well I am not selling or bartering my beer. I am hosting a tasting party where I am giving away my beer for free. I am selling brewery merchandise but of course I can't make anyone buy a t-shirt. In CA it is legal to give away beer for exhibitions, competitions, and tastings. I have talked to my accountant and he feels that it is completely legitimate as a business expense, but he has no experience with alcohol regulation.

I am pretty sure when it comes to taxes, the only thing the IRS cares about is their cut. I mean, drug dealers are supposed to be able to pay their taxes without consequences. The alcohol regulation thing would be a whole different department, probably the zoning issue? Do you have a lawyer friend? It may be handy in this case. What you are trying to do sounds like a blast and I wish you the best of luck.

I agree with kevokie. IF you get audited, the auditor isn't really going to be concerned with the legality of giving away homebrew. However, more importantly, he will want to see detailed records that show how you determined the value of each sample, how many people were in attendance at each event, and how many samples were given away. Auditors like to see spreadsheets and logbooks. It's not as simple as "I'll just write off all my homebrewing receipts." The worst case scenario (again, only if you get audited) is the he will disallow the claimed expense and you'll have to pay taxes and interest on that amount.

You're asking internet "strangers" for legal /tax advice.

I'd advise against that... (asking us, that is - we have no liability here, and you might!)

Hang glider I am well aware of that. Trust me I would never make a decision based on "I read on an internet forum..." Like I said my accountant doesn't see a problem with it from an IRS standpoint. He echoed what others have said...the IRS just wants any revenue they can get, they don't care so much about how you got it.

They certainly might report it to those who do care though.

Has you Federal Brewers Notice been approved ?? because you cant make alcohol with out it and you wont get the EPA water and waste approval with out being in the properly zoned Commercial space, IE floor drains water traps etc. and a signed contract to dispose of your spent grain
http://www.ttb.gov/beer/brewers-notice.shtml

Remember I said NO revenue is coming from beer sales. I am not selling, trading, bartering, etc....my beer. I am simply conducting free tastings on my property, which according to CA state laws appear to be legal http://www.homebrewersassociation.org/pages/government-affairs/statutes/california
I am making money on brewery merchandise which I have for sale at these tastings and obviously you are not required to buy anything. So now I am making money and paying taxes on merchandise sales from these tasting parties. It would seem logical that any costs associated with my tasting party would be a deductible business expense including food, drinks, etc.

You need to get a lawyer to interpret local, state, and federal law. I seem to recall that the laws that allow us to homebrew also require it to be for personal use. I would not want to be caught on the wrong side of the law when it comes to alcohol regulations.

True but..at least in CA there are provisions made for homemaker tastings, competitions, homebrew club meetings. Otherwise we would never be allowed to send beers across the country for a competition. I have been doing a ton of research on this at the local, state, and federal level. Everything I have come across either doesn't address it or it is an extremely vague. In CA you can share your beer for "homemaker tastings and/or competitions" but what constitutes a "tasting" or a "competition"? It is definetly open to interpretation.

Got to thinking about this a little further, and if you go and look at the Homebrewers' Association page that covers federal laws, it explicitly says that the law that allows homebrewing exempts us from taxation on it for "personal and family use". Based on that, you might save a little money on your personal taxes, but you'll owe for alcohol excise taxes. Additionally, unless you're licensed by the appropriate federal agency to be a brewer, and have approved labeling, you're potentially violating federal law.

If I were in your shoes, I'd stop what you're doing right fricking now and consult an attorney pronto, cause you're already in trouble. Sorry if that sounds harsh, but I'd hate to see your dream end because you made some innocent mistakes early in the process of trying to go commercial.

Phunhog said:

but what constitutes a "tasting" or a "competition"? It is definetly open to interpretation.

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Not from a federal standpoint, and state laws cannot supersede federal law, they can only supplement. You are a engaged in a business, and that triggers different rules.

Like I said, I'd hate to see your dream end because of something like this. Is that worth the risk?

For clarification, I'm not an attorney. My father is, I spend a lot of time with them at the office, and took several law classes as part of my graduate education. I've learned how to interpret laws, but have also learned that anytime there's a question, talk to legal counsel and let them determine how to stay within the law.

Ask your CPA
I am able to write off any and all brewing supplies because I have an "intent" to start a business. I don't have an LLC formed either.
I also do this with an e-commerce website I am planning to build (but do have an LLC formed), writing off all computer supply.

stocktires said:

Ask your CPA
I am able to write off any and all brewing supplies because I have an "intent" to start a business. I don't have an LLC formed either.
I also do this with an e-commerce website I am planning to build (but do have an LLC formed), writing off all computer supply.

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So if I want to write off my brewing supplies, I need what? A e-commerce site? What happens when the Intent goes for years with no progress?

Stocktires.....that is my CPA's interpretation too. The "intent" is there. The way I see it brewing supplies could be part of R&D, recipe formulation, and/or marketing. All parts of starting a successful business..I just am not sure of how it was affected by laws governing homebrewing.
As far as homebrewed beer being for "personal and family" use only....if that was true how could we have national competitions? There certainly isn't anything on federal level that allows competitions.

If all you have is a business license, etc. Your a marketing company! GO market your company. No you cannot write off grain! Not in CA. I mean you can but don’t get caught! Wait till you have the 23 and then write it all off! IF you think of your company like that right now, your good. The beer tasting is something not business related! So what, you sell shirts, I did for years when I was working on the CBC project. Write all that crap off, but grain and hops and yeast? Nope. Its not a marketing expense.
Cheers
Jay

Stevo2569 said:

So if I want to write off my brewing supplies, I need what? A e-commerce site? What happens when the Intent goes for years with no progress?

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I think you misinterpreted what I said, my e-commerce has nothing to do with my intent to start a brew pub.

If the intent goes for years and years, then yes, that is a problem. My CPA's advice was the IRS wants to see some income within 3-4 years (max) or they may start asking questions. You don't necessarily need to be profitable, just have income. This is my first year writing it off.

Phunhog said:

Stocktires.....that is my CPA's interpretation too. The "intent" is there. The way I see it brewing supplies could be part of R&D, recipe formulation, and/or marketing. All parts of starting a successful business..I just am not sure of how it was affected by laws governing homebrewing.

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This is exactly what I do. I don't think there is anything conflicting with laws because you are not selling your brew. The merchandise I am not sure about though, but I doubt that is any problem. You should form an LLC though if you have income IMO, this is avery cheap and simple and will look more legit.

I looked into a LLC...it is fairly cheap to file in CA. The "gotcha" part though is the 800 dollar annual "franchise fee" that the state wants. I think I will stay a sole proprieter for the time being and just keep really good records.

No offense, but you're nuts if you think you can give away your homebrew, and write off the brewing supplies, without complying with federal alcohol regulations. Do you have a local license to distribute alcohol? You're essentially an unlicensed alcohol consumer bar, using unlicensed alcohol products brewed for personal use. The fact that you aren't charging for the beer is irrelevant.

Not going to post here any further, but are you really looking for advice here, or are you looking for people to tell you that what you're doing is okay?

Get an attorney, cause you're opening yourself to liability.

I'd definitely check and make sure all your paperwork is in order, federal government likes to drop ban hammers. Btw what's the name of your brewery, and is there a website? I'd like to help if you're close by.

I've heard some funny justifications, but this thread might be the best yet. I have a guy at work who makes the same money as me, has 2 kids, and gets back $20k on his tax return every year. Ever make a work phone call form home? Well according tho his guy, that means you can write off not only your phone bill, but the whole triple play since its one bill. Hearing something from a CPA isn't exactly a good way to make decisions like this in my book.

If this is meant to be a business, you should have a lawyer anyway. Why is this question not answered by that person already?

I own a small business and barely show a profit cause the business pays for just about everything(90% of the phone 80% of the Internet and home office, my trucks, etc.) So it is possible, but 20K back on your taxes. Unless he's paying in a Sh@t pop full of taxes, that's just asking for an IRS audit. You don't want that.

As far as homebrew rite offs, I'll check the legalities and if there's a way, I'll do it. But you have to show a profit sometime or it raises red flags.

I give beer away, in fact I pay people to take it, for homebrew competitions. On a federal level why is that legal? I just went to the Southern California Homebrew Festival where 30+ homebrew clubs poured their beers for a nonprofit organization. Tickets were 50 dollars to sample and there were over 500 people in attendance. This event has been going for at least 10 years. So I don't think the federal government cares if you are giving away homebrew, now various states will be different. In CA it seems to be okay. In fact my local homebrew club pours at a "real" beer festival.

kevokie said:

... I think you are allowed to claim a hobby as a tax write off. ..

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Nope. You can't write off a hobby. It must be a business and to do that you need to show intent to make a profit.

Not a CPA, but that information is pretty clearly documented on tax rule websites.

Personally, I would leave ANYTHING related to alcohol out of everything... ie. the government doesn't need to know how you're getting your brew merch sold, just that you're selling it. Give them their slice of the pie and keep mum about the rest of it.

I think holding onto merch sales is a VERY good idea. Create a buzz (pun intended) about your product, and when you do get the zoning crap straightened out, you're good to go.

Another option would be to wine and dine some potential investors and get yourself a brick and mortar commercial location... sure, it means a commute to work, but it's something you can dedicate 100% to brewing.

Just my two cents, and certainly not legal/financial advice...

Phunhog said:

I give beer away, in fact I pay people to take it, for homebrew competitions. On a federal level why is that legal? I just went to the Southern California Homebrew Festival where 30+ homebrew clubs poured their beers for a nonprofit organization. Tickets were 50 dollars to sample and there were over 500 people in attendance. This event has been going for at least 10 years. So I don't think the federal government cares if you are giving away homebrew, now various states will be different. In CA it seems to be okay. In fact my local homebrew club pours at a "real" beer festival.

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It's probably not. When it comes down to it, the whole competition program all across the country is more than likely an intentional oversight, and if the wrong person(s) decided to attack it, we may face problems similar to what happened in Oregon last year.

As a poster mentioned before, you don't see to be looking for advice, you seem to be looking for people to tell you that what you are doing is ok. Why have you not spoken to a lawyer? It's the only sensible recommendation you have been given here and you completely ignore it. IF anyone ever caught wind of what you were doing, you would be wishing you spoke to a lawyer and not your shady CPA who has no legal training and is barely required to read up on new tax laws that come out every year.

airborneguy, you are right. I should and will talk to a lawyer. But just like a doctor or a CPA, a lawyer will be giving you his professional "opinion" which may or may not hold up in court. Not that it would ever go that far.
I think I found the "loophole" that these beer festivals are using to serve homebrew. They have a "competition" where a couple of people are asked to select their favorite beer. Thus they meet the letter of the law. They had a competition.

Not a cpa, not a tax advisor. But wanted to know:

Regardless of your income or losses, you plan on filing this as a schedule C business? If that's true, then your cpa is right, you'll need to show income other wise any and all expenses become disallowed as a hobby expense.


Understandably, you're trying to avoid the franchise tax for filing as an 1120s or c, but ask your cpa about creating such an account. You'll definately have to have better valuation taken about the raw supplies at that point.

While I doubt you could take the extent of all raw supplies into account, check with your lawyers and cpas about the possibility of including at least the valuation of the free beer portion, to see if the giveaway could be considered a viable business expense, but you may run into a sticky situation if it's decided that because you are not at the time legal to do something like distribute your own beer as a non-family/friend situation. You know, compared with buying beer from a store and having people drink it.

Chances are, you'll probably have to eat the costs for a while in either situation. But again, like everyone else has said, get your lawyer, get your cpa, and check with the professional brewer's forums. (probrewer.com)

bruin_ale said:

Nope. You can't write off a hobby. It must be a business and to do that you need to show intent to make a profit.

Not a CPA, but that information is pretty clearly documented on tax rule websites.

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Yeah it's a whole can of worms that is probably best avoided.

If this beer was legally purchased, you probably could write it off as a business expense, just as a dinner or plane ticket could be. But this is homebrew, which is supposed to be brewed for personal consumption, and that's where the problem lies.

What got me thinking about it is this. Right now I sell t-shirts. If I host a party where the intent of the party is to sell t-shirts, make money, and talk brewery business it becomes a "business party". Let's say I bought a keg of Sierra Nevada and a bunch of hamburgers, buns, hot dogs, etc.... for my business' customers. All expenses, including the beer, related to the party are deductible at least 50% and maybe 100% and is considered "entertainment". That seems like a legitimate business expense. If I could write off hamburgers buns or ketchup why couldn't I write grain and hops. Assuming of course that I served homebrewed beer.
I readily admit that it probably wouldn't be worth it in the end and it is a can of worms.

Phunhog said:

What got me thinking about it is this. Right now I sell t-shirts. If I host a party where the intent of the party is to sell t-shirts, make money, and talk brewery business it becomes a "business party". Let's say I bought a keg of Sierra Nevada and a bunch of hamburgers, buns, hot dogs, etc.... for my business' customers. All expenses, including the beer, related to the party are deductible at least 50% and maybe 100% and is considered "entertainment". That seems like a legitimate business expense. If I could write off hamburgers buns or ketchup why couldn't I write grain and hops. Assuming of course that I served homebrewed beer.
I readily admit that it probably wouldn't be worth it in the end and it is a can of worms.

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Tbh, I think you're stretching it s little bit, but I think holding a little friendly competition at your place or whatever, have it a local homebrewing competition and have your beers the side your brewery sponsers the event, merch and brewery info on site. Have the winner get a cash prize. I dunno, you can figure it out, what's the name of your brewery and location?

Two Trees Brewing Co. Ventura, CA

Scruffy....that is a great idea!!

Phunhog said:

What got me thinking about it is this. Right now I sell t-shirts. If I host a party where the intent of the party is to sell t-shirts, make money, and talk brewery business it becomes a "business party". Let's say I bought a keg of Sierra Nevada and a bunch of hamburgers, buns, hot dogs, etc.... for my business' customers. All expenses, including the beer, related to the party are deductible at least 50% and maybe 100% and is considered "entertainment". That seems like a legitimate business expense. If I could write off hamburgers buns or ketchup why couldn't I write grain and hops. Assuming of course that I served homebrewed beer.
I readily admit that it probably wouldn't be worth it in the end and it is a can of worms.

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There's a big difference there that you don't seem to understand. When you buy the keg, you're purchasing it through a distributor that's licensed to sell you a alcoholic product that's been licensed by the federal government for commercial purposes, meets all health code regulations in its production facility, is properly labeled to meet federal standard, and has all alcoholo excise taxes paid for.

What you're trying to advocate is to take beer that you've brewed under a law that only allows you to do so for personal use, and then use it for commercial purposes. By doing so, you're violating the state law that said you could do it for personal reasons, and then all the federal regulatory items mentioned in the above paragraph. You also aren't licensed to serve alcohol, so you're violating a bunch of local laws. So, if you're seeking to get into trouble at the local, state, and federal levels, then by all means, continue down your path if bliss.

You're trying to justify abusing homebrewing laws, and are a great example of why some states still make homebrewing illegal.

Yea, charge a minor entrance fee to the competition and the winner gets cash so they have incentive, your problem is finding a way of judging. I travel up to ventura every now and again, maybe I'll come check your stuff out if you get things going.

usfmikeb said:

There's a big difference there that you don't seem to understand. When you buy the keg, you're purchasing it through a distributor that's licensed to sell you a alcoholic product that's been licensed by the federal government for commercial purposes, meets all health code regulations in its production facility, is properly labeled to meet federal standard, and has all alcoholo excise taxes paid for.

What you're trying to advocate is to take beer that you've brewed under a law that only allows you to do so for personal use, and then use it for commercial purposes. By doing so, you're violating the state law that said you could do it for personal reasons, and then all the federal regulatory items mentioned in the above paragraph. You also aren't licensed to serve alcohol, so you're violating a bunch of local laws. So, if you're seeking to get into trouble at the local, state, and federal levels, then by all means, continue down your path if bliss.

You're trying to justify abusing homebrewing laws, and are a great example of why some states still make homebrewing illegal.

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Yeah, this too, gotta follow the rules or else we all get pooched in the end. Like I said earlier, make sure you have all your paperwork in order.