Homebrewing as a tax write off?

Homebrew Talk - Beer, Wine, Mead, & Cider Brewing Discussion Forum

Help Support Homebrew Talk - Beer, Wine, Mead, & Cider Brewing Discussion Forum:

This site may earn a commission from merchant affiliate links, including eBay, Amazon, and others.
Stevo2569 said:
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.
Click to expand...

I also own a business, and generally speaking 20k would be a monster return.....BUT, my wife works and pays taxes, I take an actual payroll check and pay taxes, and we file jointly. I also take the legitimate and legal allowance for home office (which in my case is 25 percent of property taxes,triple play from comcast, mortgage payment, utilities, mortgage interest, grass cutting, etc...).

It works very well, as we typically enjoy a return of around 18k, and on 12/31 of every year, I pay myself a bonus of 75 percent of the retained profit from the year. This means that on new years eve, I get usually about 30k as a bonus, and then another 18k on the tax return six weeks later. Total of 48k every year before st. patty's day.

Dont hate the player, dont hate the game, hate yourself for not knowing the rules of the game.

That said, anyone who tries to deduct homebrew expenses is a freaking nutjob who deserves the audit that I am 100% sure they have coming. There is no legal way to do it.
 
Phunhog said:
Hey Guys,
Well my nanobrewery startup has a hit a big snag.I have a business license, state and federal tax ID, ficticious business name, etc...... Your thoughts?
Click to expand...
I hope you get the zoning fixed and the Nano becomes a great brewery in the near future..

In my opinion to call it a business expense the beer must be brewed by a brewery not a home brewer.
Read the law or call your state and feds for help, they won't kill you.

If the brewer fills a “glass” on the brewery premises, the brewer must fill it from a tank that is tax determined.

Cheers,
ClaudiusB
 
I am not trying to abuse the homebrewing laws. I guess CA is just different( who would of thought..) I know of multiple nanobreweries in the Bay Area who have tasting parties. There was even a nanobrewery festival for unlicensed brewers at a bar. The line went around the block. Like I said earlier my homebrew club pours our beer at a beer festival with 4k attendees right next to Sierra Nevada, Firestone, and other licensed breweries. It is at a public park and is fully licensed by the CA ABC.
I guess in the same vain then I couldn't deduct hamburgers and hot dogs because I don't have a catering license and they weren't prepared in an inspected commercial kitchen.
 
Dude, you just don't get it.

The homebrew club pouring it at a beer festival isn't the same as your commercial enterprise trying to write this off as a taxable expense. You're looking for any reason for it to be okay instead of thinking about it from a rational standpoint.

Personally, if I was trying to setup a brewing company, I'd be following the law to the n-th degree. The government doesn't screw around when it comes to stuff like this.

Hope you don't end up getting denied a license to be a brewery because you'll have a criminal record for failing to follow federal, state, and local alcohol laws. But, hey, it's your life, and you might save a hundred bucks or so on your taxes.
 
I am trying to follow the law to the n-th degree! I have a business license, FBN, keep all receipts, have federal and state tax i.d. numbers, etc....I am trying to play by all the rules. If I didn't care I would just sell the beer and shirts under the table and nobody would be the wiser. Now that would be illegal!!
I wonder what a full scale startup brewery does? If they buy tens of thousands of dollars of brewing equipment in 2011 but aren't licensed until 2012, does that mean they can't deduct what they spent in 2011 since they weren't licensed? Doubtful.
I have followed every local, state, and federal law regarding homebrewing.
 
jjward101 said:
I also own a business, and generally speaking 20k would be a monster return.....BUT, my wife works and pays taxes, I take an actual payroll check and pay taxes, and we file jointly. I also take the legitimate and legal allowance for home office (which in my case is 25 percent of property taxes,triple play from comcast, mortgage payment, utilities, mortgage interest, grass cutting, etc...).

It works very well, as we typically enjoy a return of around 18k, and on 12/31 of every year, I pay myself a bonus of 75 percent of the retained profit from the year. This means that on new years eve, I get usually about 30k as a bonus, and then another 18k on the tax return six weeks later. Total of 48k every year before st. patty's day.

Dont hate the player, dont hate the game, hate yourself for not knowing the rules of the game.

That said, anyone who tries to deduct homebrew expenses is a freaking nutjob who deserves the audit that I am 100% sure they have coming. There is no legal way to do it.
Click to expand...

Like I said(unless your paying a Sh@t pop full of taxes) I used to make quarterly payments, but stopped years ago, cause it just comes back. Why give to the IRS at 0% when I can get it at higher%. I don't hate players or the game. Although I don't like those that undeservingly get state or federal money, when others that really need it can't. Lazy as- leaches.
 
Phunhog said:
I wonder what a full scale startup brewery does? If they buy tens of thousands of dollars of brewing equipment in 2011 but aren't licensed until 2012, does that mean they can't deduct what they spent in 2011 since they weren't licensed? Doubtful.
Click to expand...

Check with a CPA.
It's not the purchase date what counts is the put in service date.
If you bought equipment a few years ago for your planned Nano and you put it into service this year you can deduct it when you file 2011 tax.

Check out the 179 rule for your brewery.

You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. This is the section 179 deduction. You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions.

Cheers,
ClaudiusB
 
Phunhog said:
I wonder what a full scale startup brewery does? If they buy tens of thousands of dollars of brewing equipment in 2011 but aren't licensed until 2012, does that mean they can't deduct what they spent in 2011 since they weren't licensed? Doubtful.
Click to expand...

As I said before, you're not looking for advice here, you're solely looking for justification. And oncve again, you're using an example that isn't apples to apples.

The equipment would likely be depreciable. However, any raw materials used to create a controlled substance for which you aren't legally able to sell wouldn't be. Additionally, the authorities would probably want to understand what you did with the results of those raw materials. Given that its a commercial enterprise, and we're talking about a product that is subject to federal excise taxes, you'd have to track every single ounce of it.

You could probably write off materials used for R&D, but again you'd need to track the final products.

However, that isn't issue at play here. The issue at play is that you're a homebrewer, not a commercial brewer. Therefore, none of that matters. You can't depreciate equipment that isn't in use for a commercial enterprise, and you can't expense the raw materials to use that equipment, because you aren't using it for a commercial enterprise.

Get an attorney, and get the licenses you need. Until then, you're a homebrewer, not a commercial brewer. Until then you cannot use any of your homebrew for anything other than personal use. Selling t-shirts for a commercial enterprise you own isn't personal reasons.
 
I was thinking about this on the way to work yesterday...
Lets say everything was fully licensed, and you hosted a tasting. No one paid for the tasting or any beer, but you did in fact sell merchandise that you were licensed to sell. Since no one paid for tasting or beer in any way, you also did not pay the $7 per barrel taxes (or whatever they are) for dispensing either. I would certainly think it ridiculous not to write off any food, equipment, hops, barley, or anything else purchased or bought to make the tasting (and subsequent sale of merchandise, that you are licensed to sell) successful as a business expense.

Just because you are not licensed for selling or commercially brewing yet just means you cannot commercially brew or sell alcohol. Provided you still operate with in the confines of the "tasting" rules (I have read them a couple times and I am vaguely familiar) and you incur expenses in order to legally sell merchandise why not write it off?

Eidit: It sounds like the "hangup" issue for a lot of people here is the tasting idea. I know here in Colorado, Homebrew has to be brewed for the sole intent and purpose of drinking for personal use on my premises in my home. That being said, there are also tasting rules. In Colorado it is legal for me to host a tasting where I serve my homebrew legally to a whole bunch of guests. I am guessing California has the same sort of tasting rules. As long as I follow the "tasting" rules here in Colorado, I do not need to be a commercial brewer in order to serve my homebrew to 20 guests I've invited over for a tasting.
 
I would be interested to hear what your zoning had to say about your enterprise, why they provided a tentative allowance and then withdrew it.

You might want to see what zoning and state law has to say about the operation of private clubs. This was a nice loophole in Britain that allowed pubs to close publicly at the proper time (11pm) but remain open for private patrons. Private patrons paid a fee to become members and the bar operated under a separate set of rules.
 
Here is the Federal law regarding homebrewing...http://www.homebrewersassociation.org/pages/government-affairs/statutes/united-states

Here is CA law regarding homebrewing...http://www.homebrewersassociation.org/pages/government-affairs/statutes/california

They both allow for homemaker tastings outside of the home. I am sure other states are much more strict. I read this as I can even conduct free beer tastings at other peoples' houses. These, of course, would be private, invite-only tastings. I could sell shirts to recover my costs and hopefully make a little bit. It would also help to market the brewery and talk to potential investors. That sure sounds like a business meeting, or at least entertaining customers and/or potential investors. Now would I honestly try to claim the grains, hops, etc....as a business expense? I don't know if the few dollars I would save would be worth the potential headaches. It sure seems like it would fit the rules under the IRS guidelines. I am certainly not doing anything illegal with the beer and I am following the federal and state statutes.
As far as zoning...my city has really been cracking down lately on unauthorized uses of garages. It is easier for them to flat out say "NO" right now than " ....lets' see what we can do".
 
You can write off the expenses incurred with any endeavor you can justify as an attempt to improve your job opportunities. If you want to be a brewer, you can write off the expenses of training to be a brewer. That includes bying ingredients to brew AS WELL as the portion of space in your home dedicated to that purpose.. Check with your accountant, of course.
 
I am a CPA. I specialize in small business and can tell you that if you are making money, the IRS wants tax. If there is a profit motive and a reasonable expectation of profit then by all means deduct your brewing expenses from your brewing income and report the result on Schedule C of your income tax return. If the result is a net loss, then take the loss. Home beer brewing was broadly considered by the IRS to be a hobby until nano-breweries started making money. Now the issues is not so clear cut. The advice about making sure that you can legally sell beer is good advice. The IRS could disallow losses if you are not legally in business. The fact that you applied for rezoning is a very strong indicator of profit motive, meaning that this is being pursued as a viable business so the hobby loss rules should not apply. Brewing beer solely to sell t-shirts, etc. is also an acceptible business practice.
 
You are sitting at the intersection of a lot of areas of law. Since you are trying to form a commercial brewery, homebrewing laws no longer apply to what you do. You cannot look at what is permitted for homebrewers or homebrewing clubs and try to apply it to what you are doing.

You are commercial. You are selling products, even if it is not (yet) beer.

If the beer is given out at tastings where you are selling merchandise, you may be indirectly "selling" the beer. You may have liability for selling products and serving commercial beer at the same time if your servers were not licensed servers with the state ABC. You may have liability for producing beer and serving it to the public when you do not have a brewer's permit, EPA water approval, or state/local authority to make beverages for public consumption wherever you are currently making it. You may owe taxes on the beer you have served. You may not have been permitted to sell it in the first place. You have issues about what you can claim as expenses and when.

It's not enough that you said, "gee, I'm trying to follow the law because I applied for some permits and general business licenses." You are trying to start a business in a heavily regulated industry that is regulated by multiple government offices that require a host of different things for use. An accountant is not going to be able to walk you through everything you need to do to really comply with the law. Its not their job and not their skill set. You NEED a lawyer with some expertise in business formation that can provide you specific advice to your issues.
 
Everything I have come across regarding brewing is that either you are a homebrewer or a fully licensed professional brewer. There is nothing in between and you have to follow the rules for each. I am even talked to a full licensed nanobrewer who told me he isn't allowed to homebrew in his garage since that is where the licensed brewery is established. Essentially that until I have a Brewers Notice everything that I brew is homebrew, providing of course that it is on my own property
These tastings are not open to the general public. They are private,invite only tasting party's. I know in CA that is pretty big distinction on whether you need a liquor license or not.
 
Phunhog - You're definitely violating the spirit of the law, and probably the letter of the law too.

Under Calif. law you're permitted to make up to 200 gallons of beer for "personal or family use." I'm not a lawyer, but if you're giving your beer to non-family members and using your beer as a means to sell merch and promote your brand, then I don't see how it could be "personal or family use."

I don't know the particulars of Calif. law, but I've looked into Missouri law, and there you need a retail liquor sales license to give away promotional beer for free.

I agree with your interpretation that "you're either a homebrewer or a commercial brewer," to paraphrase, but I disagree with thinking you're "just a homebrewer." It sure sounds like you're an unlicensed brewery/wholesaler. Saying you're not a licensed brewer, so you can legally make and distribute beer as a homebrewer is kinda like saying "I don't have a driver's license, so I should be able to drive as fast as I want."

Now, whether or not you'll get in trouble is a totally separate issue, and you probably won't, but if you do get busted for making and distributing beer illegally, that could prevent you from getting TTB approval. Previous alcohol-related crimes are one of their criteria.

If I were you I would stop what you're doing immediately until you hire a good lawyer who knows the topic well.
 
In CA you are allowed to remove homebrewed beer for exhibitions, tastings, and competitions. That is why they can pour homebrewed beer at the NHC in San Diego during club night. I am sure the AHA would not serve homebrewed beer if it violated state, federal, or local laws. In fact that is one of the reasons why the National Hombrewers Conference is only held in certain states. So the "personal or family use" argument kind of goes out the window, at least in CA
 
Phunhog said:
In CA you are allowed to remove homebrewed beer for exhibitions, tastings, and competitions. That is why they can pour homebrewed beer at the NHC in San Diego during club night. I am sure the AHA would not serve homebrewed beer if it violated state, federal, or local laws. In fact that is one of the reasons why the National Hombrewers Conference is only held in certain states. So the "personal or family use" argument kind of goes out the window, at least in CA
Click to expand...

The contestants aren't selling beer merch at the NHC, AFAIK, and they don't stand to make any money off the proceedings.

Why even bother opening a brewery at all, if you've found the loophole to get around licensing and taxation? Just charge more for your t-shirts and keep "giving away" beer.
 
My point is that in CA any homebrewer can serve their beer at an exhibition, tasting, or competition. I just served a keg of my beer at the Southern California Homebrewers Festival. Their were almost 30 homebrew clubs and well over 300 beers on tap!! We can do this as long as it is a "private" event not open to the general public on the day of the festival. Although anyone can buy a ticket before the festival. MoreBeer! was there serving homebrew and selling homebrew supplies.
If I can't get some sort of zoning variance that is exactly what I intend to do. Sell brewery merchandise and have free tastings. If I can sell 100 shirts a year that will work out to 1K profit. Do you know how much beer a nanobrewery has to sell to make a 1k profit? A lot!! Most people I have talked too says it is a lot of fun but.....break even at best!!
 
You keep saying that you consider it a private tasting...
But if you do it to promote buisniss with your clients there is no way you can call it private
 
janivar123 said:
You keep saying that you consider it a private tasting...
But if you do it to promote buisniss with your clients there is no way you can call it private
Click to expand...

That's what I thought. When you violate the spirit, but not the letter of the law, that's called "gaming the system." If you have a low opinion of "the system" maybe that's something you want to do. I generally respect and appreciate law and order and all that, so I don't really care for "gaming the system."

This thread makes me keep wondering about the implications of people "gaming the system" when it comes to homebrew. If enough people exploit the letter of homebrew laws to circumvent the spirit of liquor laws, I can only see a crackdown on homebrewers coming from that.

If everyone distributes beer for profit via "private parties" maybe we'll see a crackdown on homebrew laws that takes away our ability to lawfully participate in comps and "private parties."
 
The participants in NHC and the So Cal Homebrewers Festival are not holding themselves out as commercial nanobreweries and as such are conducting bona fide homebrew tastings. I believe you understand this difference and are just trying to be clever.

I appreciate how cute homebrewers can be when they want to sell beer without doing it the right way but I find that people in law enforcement appreciate cuteness much less.
 
I am not holding myself out as a commercial brewery, in fact I make it very clear that I am a homebrewer who has aspirations of someday opening a brewery. Look at my facebook page and tell me what is illegal. All my beer is considered homebrew since I don't possess a Brewers' Notice. My beer is no less homebrew than yours! All I am doing is selling shirts and hats to support my dream. Some of the people who have bought shirts have never tasted my beer or don't like beer. They just like the cool shirt.
 
Wasn't this thread about claiming the costs as a write-off? You didn't ask her that in your question.

Why have you not just gone to a lawyer and ended this whole debacle of a thread?
 
Phunhog,

You are either flaming this thread for fun or you do not understand what you are getting yourself into. Get a lawyer who has experience with alcohol laws. Asking a question on a blog (which is basically what you are doing here) is not the same as having a lawyer. Get a lawyer.

RedGlass
 
Could you write it off? Probably. Would I? Definitely not.

I wouldn't be as concerned with the IRS rejecting this "business expense" as I would the fines from city/state government for the production of beer without a license.

Here's the difference as I see it: If you are buying the ingredients as a personal expense and providing the beer as a personal tasting, then I see no problem with the production being considered "homebrew". But, if you are purchasing ingredients as a business (that's what the write-off means), and providing the result as business promotion (that's why you can write-off) then the production of it would likely be considered labor (even if it is free labor) and resulting in "product" -- which is what the laws are there to regulate.

I suggest you keep on, documenting the amounts you are producing under household guidelines so as not to be fined for over-production, and consider this personal investment rather than business expense. I'm almost certain that 30% of the cost of ingredients isn't going to exceed the fines you are at risk for anytime soon.

Note: I'm not a lawyer or tax professional, this is simply advice from someone who knows a little bit about business.
 
As I stated earlier in this thread I am pretty well convinced now that, although I might be able to write off the cost of brewing ingredients, it isn't worth the potential troubles to save maybe .....100 dollars. In other words I am NOT going to try and claim homebrew supplies as a business deduction.
As far as conducting free, private tastings and selling shirts........in California it doesn't appear that I am breaking any laws. Your state might be different. At the very least it is a gray area. I am going to ask some ABC folks what they think. First I bet they don't really care because of the "small potatoes" type of deal. Next I bet I get different answers based on who I talk too. We will see.
 
i dont think the answer to your question has anything to do with whether or not it is legal to sell your beer. it comes down to, Are the expenses you are trying to write off legitimately concerning your business. the legality of making/selling beer has nothing to do with your taxes, that concerns another agency.

what is your business, a nanobrewery? then any expense required to run that business is a write off but with some stipulation such as a car must be designated as soley a work vehicle. you can't write off the miles or gas for a vacation. it seems pretty straight forward to me. if you baked cakes for your business parties i'm sure you could write off the flour and eggs.

however, if you are a licensed nanonrewery than nothing about homebrew applies to you or your business.
 
I'd brew a CPA and think about how the IRS could say you are spending too much on advertisement (free beer) and meals & entertainment (free beer) but I like it has been said Don't listen to us !!! Ask your IPA or is that CPA ,,

Willy Nelson
 
Your brewing ingredients would be part of your Cost of Goods Sold if you were selling beer. Since you are not in the business of selling beer, then the ingredients go under the hobby loss rules.

I work for a CPA firm and highly recommend you take the conservative approach and don't try deducting ingredients unless you are actually selling the brew. Since you are giving away the beer it falls under the hobby category. Your business would be that of tshirts, etc. And most likely you would use Schedule C if you were in the brewing business, but Schedule C audits are the most common and are on the rise.

You'd most likely lose in tax court over this if you tried to be aggressive in deducting these expenses. It's not worth the penalties and interest on any unpaid tax. As a hobby, even if you were receiving some sort of revenues, you could only deduct the expenses that equal the revenues received, essentially creating zero profit/loss.
 
Phunhog said:
I got a response from one "expert". She is a retired ABC investigator and administrator who does consulting on alcohol issues.
http://theliquorlicenseadvisor.com/blog/?p=69#comments
She seems to think it is legal.
Click to expand...

Your question was a little dishonest. You asked her if you could give out homebrew and sell clothes from your "little clothing business".

Your clothes hold you out as a "brewing co." not as a homebrewer and not as an independent clothing business. Your merchandise holds you out as a brewery. Your facebook page states, "The best beer you can't buy.........yet!" You applied for permits to brew in your garage. Your facebook at least gives the appearance the beers you are now brewing for your tastings are the same that you would make commercially.

You can't pretend like the two are unrelated.

Your problem is that the merchandise you are selling is connected to the beer. That makes your status as a homebrewer (rather than as an unlicensed brewery) suspect. A major problem is that it can be argued that your "brewing co." with its business license and fictitious business name is brewing the beer, not you the individual. Since a business cannot be a homebrewer, then the beer cannot be homebrew.

But hey, you asked some gal on a blog and she said it was probably ok...
 
Yes...the shirts say "Brewing Co." I know of many homebrewers who name their brewery. Nothing wrong in that. You seem to think that there is something illegal in selling shirts that say "Brewing Co.", is "brewing" some sort of forbidden word. If I dropped "brewing co." would it suddenly be o.k? I haven't applied for any permits to brew in my garage. I was getting ready to when my city said "No". I have hosted multiple tastings.
Two Trees Brewing Co. is a sole proprietership. The legal name is my name...DBA Two Trees Brewing Co. Essentially the company and myself are one and the same legally. There are no concerns that the "company" is brewing beer and not me from a legal standpoint.
I wanted to get the Liquor License Advisor's opinion, and that is all it is. An opinion. Just like yours is just an opinion. However she did work for the CA ABC as investigator and department head for 30+ years. She is also a paid "expert witness" in alcohol related courts proceedings. I think she has a much better understanding of what is permitted under the law than any of us do! I have contacted my local ABC office and an attorney and hope to get some sort of resolution to this.
 
Phunhog said:
Yes...the shirts say "Brewing Co." I know of many homebrewers who name their brewery. Nothing wrong in that. You seem to think that there is something illegal in selling shirts that say "Brewing Co.", is "brewing" some sort of forbidden word. If I dropped "brewing co." would it suddenly be o.k? I haven't applied for any permits to brew in my garage. I was getting ready to when my city said "No". I have hosted multiple tastings.
Two Trees Brewing Co. is a sole proprietership. The legal name is my name...DBA Two Trees Brewing Co. Essentially the company and myself are one and the same legally. There are no concerns that the "company" is brewing beer and not me from a legal standpoint.
I wanted to get the Liquor License Advisor's opinion, and that is all it is. An opinion. Just like yours is just an opinion. However she did work for the CA ABC as investigator and department head for 30+ years. She is also a paid "expert witness" in alcohol related courts proceedings. I think she has a much better understanding of what is permitted under the law than any of us do! I have contacted my local ABC office and an attorney and hope to get some sort of resolution to this.
Click to expand...

You're just going to believe whatever you want to believe, so there's no sense having the conversation...
 
usfmikeb said:
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.
Click to expand...

Actually the 10th amendment says "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

Which means that unless it is written in the constitution, then it is a state issue.


But yeah, if money is exchanged and alcohol is sampled, even if you say the alcohol was just a sample and they bought the shirt, they most likely will try to say that you were selling alcohol, especially since you have already shown intent on selling alcohol, and since you claim to be just a homebrewer, they will fine the **** out of you.
 

Similar threads

P
What happened to IPA?
2
Replies
49
Views
3K
Clint Yeastwood
Clint Yeastwood
Brit the !@#$
New Apple Orchardist Member Looking to Develop Graf Recipe Using Cider Syrup
Replies
16
Views
975
madscientist451
madscientist451
T
2023 FotD Secret "Santa" ("Cupid"?) Beer Swap
2 3
Replies
112
Views
5K
Thorrak
T
I
California SOLD Spike CF10 unitank extras 750
Replies
0
Views
438
ihavenonickname
I
Brooothru
Say Hello to the FNG
Replies
1
Views
532
IslandLizard
IslandLizard
Yakima 300

Latest posts

Back
Top