Deducting Home Brew Expenses

[TaxGuy]

I do not suggest that people create sham businesses in order to write off their homebrew hobby. That isn't smart for obvious reasons.

The question I was posing is whether someone who is engaged in a legitimate (i.e. legal) consulting activity can deduct the related expenses. It seems to me that they would, but that they would have to keep adequate records to support that deduction.

 

[thatjonguy]

Just going to throw out the obligatory Office Space reference about "white-collar prisons".

 

[TaxGuy]

Since it is illegal to sell homebrew, the idea of trying write off expenses is not going to fly with the IRS.

I love to play golf as another hobby, can I write of all the money I spend on that hobby? I don't have enough talent to make a lot of money at it. I could probably lose a lot of money at it. But at least that is legal endevour.

I am not suggesting that you illegally sell home brew. Rather, it is possible to make money by offering homebrew classes, personalized consulting and related services. Those activities are generally legal depending on your state and local laws.

I don't think that golf analogy works here. Simply because you enjoy an activity doesn't mean that it becomes an activity engaged in for profit. I would never suggest a deduction based on what you said above.

However, say that you were a golf instructor and offered lessons to students, couples, etc for a fee. Wouldn't you think that some of the equipment used to provide these services would be deductible assuming it was an activity engaged in for profit?

 

[TaxGuy]

As a web developer, I file self employment business expenses (schedule C) on my taxes every year. The IRS is *very* clear on what can and cannot be deducted. The fact that an activity saves you money/makes you money does not constitute it as a business.

You could argue that taking the bus to work would save money over buying gasoline, tires, oil, and insurance for a car. You still can't deduct those bus fares.

Deducting homebrewing expenses is just asking for an audit.

The fact that an activity is engaged in for profit determines whether or not the related expenses are deductible. If you are engaging in a brewing consulting business, why wouldn't you be able to deduct the ordinary and necessary expenditures for carrying on that trade or business?

I don't quite track your commuting analogy. Commuting is never deductible, even for a schedule C business.

Any losses generated on a Schedule C may raise the "red flag." However, if you are actually carrying on an activity engaged in for profit (i.e. consulting, education and service), why wouldn't your deductions be sustained in the event of an audit?

Again, I'm talking about a homebrew consulting business. I'm not talking about producing, distributing or selling beer which requires licenses, etc.

 

[TaxGuy]

Section 183 there are several factors.........in theory if you we're making an attempt to make a profit, the venture is illegal unless you are licensed. Illegal activities are taxable income.....but the expenses are not deductible for an illegal activity. Bottom line....it's illegal...any way you stack it, you don't win. You must remember the business....must be engaged in for a profit.....therefore....if there is a profit, Taxes go up...if there is no profit, it is a hobby loss. Hobby lose can be deducted up to expenses for that hobby as a misc itemized deduction on schedule a subject to a 2 percent agi limitation...but not to exceed income from that hobby........I wouldn't pursue this, it's a slippery slope and I don't have time to explain it. But it's a very bad idea and is borderline on being a very bad idea. No liscense no deduction.

Illegally selling homebrew is a bad idea for many reasons. I'm not suggesting that anyone do this. I was posing a question regarding the deductibility of expenses associated with a consulting business engaged in for profit.

 

[reinstone]

Well the original question stated ....start up this consulting to reduce my w2 wages.....tax avoidance?

 

[hunter_le five]

The fact that an activity is engaged in for profit determines whether or not the related expenses are deductible. If you are engaging in a brewing consulting business, why wouldn't you be able to deduct the ordinary and necessary expenditures for carrying on that trade or business?

I don't quite track your commuting analogy. Commuting is never deductible, even for a schedule C business.

Any losses generated on a Schedule C may raise the "red flag." However, if you are actually carrying on an activity engaged in for profit (i.e. consulting, education and service), why wouldn't your deductions be sustained in the event of an audit?

Again, I'm talking about a homebrew consulting business. I'm not talking about producing, distributing or selling beer which requires licenses, etc.

Theoretically, but if you also use the same equipment for personal use, then it becomes a bit sticky. Ask anyone who's ever tried to deduct a home office, or a personal vehicle also used in business activities.

In the OP you seemed to be suggesting that you could deduct your hobby expenses by offering some token "consulting services" (at least that's how it came off to me), and which is just asking for trouble. Even if you ran a full-scale homebrew shop, you couldn't just deduct all of your expenses that were strictly personal.

 

[amandabab]

My question is can you expense ingredients and equipment if you use the products to entertain. For example, if you brew beer for an Octoberfest party where you talk potential business with potential customers. Similar to taking people out to dinner or for drinks. I assume that the 50% rule would apply, I.e., that you can claim only 50% of the expense.

-John

do you have a catering business and a license to serve alcohol at venues?

 

[reinstone]

Theoretically, but if you also use the same equipment for personal use, then it becomes a bit sticky. Ask anyone who's ever tried to deduct a home office, or a personal vehicle also used in business activities.

In the OP you seemed to be suggesting that you could deduct your hobby expenses by offering some token "consulting services" (at least that's how it came off to me), and which is just asking for trouble. Even if you ran a full-scale homebrew shop, you couldn't just deduct all of your expenses that were strictly personal.

Regularly and exclusively for business is the name of the game.

 

[TaxGuy]

Regularly and exclusively for business is the name of the game.

I agree with that. If something is used only for personal reasons, that would not be eligible for a deduction. The tricky part is drawing the line between business and personal with an activity like this.

 

[Beernik]

I do not suggest that people create sham businesses in order to write off their homebrew hobby. That isn't smart for obvious reasons.

The question I was posing is whether someone who is engaged in a legitimate (i.e. legal) consulting activity can deduct the related expenses. It seems to me that they would, but that they would have to keep adequate records to support that deduction.

I would say "Yes... But".

Yes you can deduct the consulting activities. But the business is the "consulting services" not the "brewing." Such as renting a space to teach a class or buying parts to teach someone how to build a controller.

Anything that is specifically purchased and used to make a beer is not deductible at all if it goes into the making of a beer. Homebrewing is by definition not a legal business. And while it is required to report income generated from any illegal business (Al Capone) you cannot deduct Federally illegal business expenses (medical marijuana).


Where is becomes questionable is things that are both homebrewing related and consulting related. If you keep jars of malted grain for demonstration & consulting educational purposes it might be deductible. Equipment you have that you use for consulting and for personal use may be partially deductible but you are pushing the bounds of grey areas.

 

[TaxGuy]

Theoretically, but if you also use the same equipment for personal use, then it becomes a bit sticky. Ask anyone who's ever tried to deduct a home office, or a personal vehicle also used in business activities.

In the OP you seemed to be suggesting that you could deduct your hobby expenses by offering some token "consulting services" (at least that's how it came off to me), and which is just asking for trouble. Even if you ran a full-scale homebrew shop, you couldn't just deduct all of your expenses that were strictly personal.

If the business was a sham and used solely generate losses, you are asking for BIG trouble. However, if is a legitimate activity engaged in for profit (as defined under IRC section 183, respective Treasury Regulations and applicable case law), there's nothing inherently wrong with generating a loss in a start-up period. Its not uncommon for a business to lose money periodically, especially in its first few years of operations.

 

[TaxGuy]

I would say "Yes... But".

Yes you can deduct the consulting activities. But the business is the "consulting services" not the "brewing." Such as renting a space to teach a class or buying parts to teach someone how to build a controller.

Anything that is specifically purchased and used to make a beer is not deductible at all if it goes into the making of a beer. Homebrewing is by definition not a legal business. And while it is required to report income generated from any illegal business (Al Capone) you cannot deduct Federally illegal business expenses (medical marijuana).


Where is becomes questionable is things that are both homebrewing related and consulting related. If you keep jars of malted grain for demonstration & consulting educational purposes it might be deductible. Equipment you have that you use for consulting and for personal use may be partially deductible but you are pushing the bounds of grey areas.

I mostly agree with you, and I think it would largely depend on how you structure the education. For example, Midwest Supplies offers free classes once a month or so on homebrewing, winemaking, etc. They will actually brew beer during that class. Are you suggesting that they would not be able to deduct the costs of the extract/grains/hops/yeast etc used in that demonstration?

 

[libeerty]

I do not understand the point of this thread. If you run a consulting business, you may be able to make deductions. If you do not, then your homebrewing is a hobby and nothing can be deducted. There isn't this large gray area between the two, or at least I can't imagine anyone running a successful homebrewing consultant business. Most people learn from friends or learn from books.

Who here is a homebrewing consultant? Anyone?

 

[tphjr]

Who here is a homebrewing consultant? Anyone?

Not me, I'm just a ordinary Accountant type consultant who brews beer. And I know for a fact that I can't deduct any of my brew gear or brew supplies because they have nothing to do with my business.

If I were teaching brewing classes, all of the gear & supplies directly related to the classes would be deductable. But if I used the same gear for my own homebrewing then only the percent of usage involved in the classes would be deductable.

So, it goes like this, assuming I taught 4 brewing classes a month and brewed for myself once a month:

4/5 of the value of the equipment shared between both activities would be tax deductable.
100% of the value of the equipment used for the classes ONLY would be deductable.
And 100% of the equipment not used for classed would not be dedutable.

But it gets tricky - if I taught classes then brought the beer home for consumption the deduction would be way in the grey area and would probably fail an audit because I would be brewing for home.

 

[Beernik]

I mostly agree with you, and I think it would largely depend on how you structure the education. For example, Midwest Supplies offers free classes once a month or so on homebrewing, winemaking, etc. They will actually brew beer during that class. Are you suggesting that they would not be able to deduct the costs of the extract/grains/hops/yeast etc used in that demonstration?

I would say they can deduct it because it is both a promotional expense for the "homebrew supply business", and it's a loss of inventory.

As an individual or consultant, it becomes sketchy.

On the other hand, the "alcohol manufacturing process" for a homebrewer is the pitching of the yeast. If you don't pitch the yeast, it is not a regulated fermented beverage. If you do pitch yeast, it is a regulated fermented beverage. Soooo... If you make a wort or a must and don't pitch yeast, it should be fully deductible. Of course if this is your plan, have photographic evidence you dumped the wort or the auditor may not believe you.

 

[Billy-Klubb]

I do not understand the point of this thread. If you run a consulting business, you may be able to make deductions. If you do not, then your homebrewing is a hobby and nothing can be deducted. There isn't this large gray area between the two, or at least I can't imagine anyone running a successful homebrewing consultant business. Most people learn from friends or learn from books.

Who here is a homebrewing consultant? Anyone?

I made a bunch of business cards on my 'puter and handed them out to folks & dropped them in craft 6ers, but no one's called yet. and I'm not charging, just spreading the good word on the home brew.


wait...I don't think I answered your question. maybe... I... nope. I lost it.

 

[Hogarthe]

can I deduct the time I spent reading this thread from my taxes?

 

[Phunhog]

I asked this same exact thing a few years ago.....https://www.homebrewtalk.com/f14/home-brewing-tax-deductions-233293/ I am still pouring beer at charity beer festivals a few times a year and selling t-shirts. Most of the t-shirt sales occur at the beer festival so wouldn't the beer than be considered a business expense? Much like a banner, table, jockey box, etc? Can't really sell my shirts at a beer festival without giving away beer.....

 

[Randy_Bugger]

Can a pro brewer deduct his beer bar tab for purposes of R&D ?

 

[Phunhog]

Can a pro brewer deduct his beer bar tab for purposes of R&D ?

I am sure that when a pro brewer goes to Europe for business part of it is deductible. So I could see that a beer bar tab could be deductible especially if he talks business with another pro brewer. Business people deduct meals all the time....as long as business is conducted during the meal.

 

[Mb2658]

How about being honest and paying the taxes that you actually owe? Novel idea, I know. I'm no fan of taxes but one of the biggest problems with society today is people trying to skirt the system. If you make the jump to being a professional brewer, then you can worry about what a brewer can legitimately deduct as a business expense.

 

[betarhoalphadelta]

How about being honest and paying the taxes that you actually owe? Novel idea, I know. I'm no fan of taxes but one of the biggest problems with society today is people trying to skirt the system. If you make the jump to being a professional brewer, then you can worry about what a brewer can legitimately deduct as a business expense.

If they're legally justifiable business expenses, you *don't* actually owe those taxes. This thread is about figuring out whether it's legally justifiable or not.

 

[reinstone]

If they're legally justifiable business expenses, you *don't* actually owe those taxes. This thread is about figuring out whether it's legally justifiable or not.

It's not.

 

[Phunhog]

How about being honest and paying the taxes that you actually owe? Novel idea, I know. I'm no fan of taxes but one of the biggest problems with society today is people trying to skirt the system. If you make the jump to being a professional brewer, then you can worry about what a brewer can legitimately deduct as a business expense.

Agree. Last year I made a little bit of money selling my "brewery" t-shirts. I paid state sales tax, as well as state and federal income taxes on my "earnings" of a few hundred dollars. With that being said I have no problems taking every legal deduction offered to me. If I sell my t-shirts at a special event wouldn't all costs associated with this "work event" be deductible since I am technically doing business (selling shirts)?

 

[Mb2658]

Agree. Last year I made a little bit of money selling my "brewery" t-shirts. I paid state sales tax, as well as state and federal income taxes on my "earnings" of a few hundred dollars. With that being said I have no problems taking every legal deduction offered to me. If I sell my t-shirts at a special event wouldn't all costs associated with this "work event" be deductible since I am technically doing business (selling shirts)?

I agree whole heartedly. Every person should take the deductions that they are legally allowed. The tax code is ridiculously complex and need to be changed in my opinion. That being said, I have little tolerance for people who try to get creative and take deductions that aren't allowed just so they can avoid paying taxes. Homebrewing by definition is a hobby. Are you going to deduct your golf clubs and claim that you are a golf consultant? Are you going to deduct the money that you spend on hookers and blow and claim that you are a nightlife consultant?

 

[MarshmallowBlue]

Are you guys joking? Commuting is DEFINITELY Deductible on a schedule C. I do it every year. TurboTax even has a field for it. Weather its Gas money (lots of math involved unless you have a car that's just for traveling to clients, but still lots of math and lots of records to keep). I deduct the cost of my Commuter Passes.

Anyways. This trying to deduct homebrewing expenses on your taxes just seems like your asking for an audit. You saved money on buying that much volume of beer / wine etc... Leave it at that.

 

[Ridire]

Are you guys joking? Commuting is DEFINITELY Deductible on a schedule C. I do it every year. TurboTax even has a field for it. Weather its Gas money (lots of math involved unless you have a car that's just for traveling to clients, but still lots of math and lots of records to keep). I deduct the cost of my Commuter Passes.

Anyways. This trying to deduct homebrewing expenses on your taxes just seems like your asking for an audit. You saved money on buying that much volume of beer / wine etc... Leave it at that.

Cost of commuting is absolutely not deductible. This is not even debatable. You get into some grey area if you work from home but then your expenses are no longer commuting if they are deductible.

http://www.irs.gov/taxtopics/tc514.html

TurboTax asks for your commuting miles because there is a place on Form 2106 to put your total miles, your deductible miles and your commuting miles. I highly doubt TurboTax is deducting the miles you list as commuting.

 

[Spartan1979]

Who here is a homebrewing consultant? Anyone?

Most of here are homebrewing consultants. Of course, no one pays for our services. If we tried, the next guy would be happy to provide free advice.

 

[TyTanium]

Do we really want the IRS looking at our hobby?

No. Please don't give them a reason to.