A guide to tax breaks for breweries

This article was originally published in the Worcester Business Journal’s “10 Things I Know About” column.

10) The federal research and development credit is an overlooked tool. Central Massachusetts is a bustling hub of craft brewery activity. Between 2014 and 2015, breweries statewide in Massachusetts jumped by nearly 38 percent to 84, at least a dozen of which are in the Central region. The federal R&D tax credit can provide breweries young and old, large and small, with significant savings.

9) Reduce income taxes to support growth. Legitimate reduction of income taxes is one way a new brewery can reduce a significant barrier to survival and growth, and the R&D tax credit is an ideal.

8) Tax credits are more potent than tax deductions. While deductions reduce income on which tax is based, credits reduce tax itself, often dollar-for-dollar. The R&D credit can convert outlays from deductions to credits.

7) The “craft” in craft brewing. Expenditures that qualify for the credit are those that are intended to discover information that is technical in nature for use in developing a new product, formula or process.

6) The outcome is irrelevant. The outcome, or viability of the undertaking must be unknown. The credit is intended to reward risk.

5) Qualifying activities. Activities qualifying for the R&D credit include bottling line/canning, general process improvements, efficiency improvements, experimental brewing and barrel aging.

4) Wages can be counted. Wages paid to employees who work on these projects not only may qualify, but generally represent the largest component of qualifying costs. Since employees nearly always split time between qualifying research activities and other tasks, wages may be allocated between the two.

3) What if I’m a startup? Startup breweries without an established baseline are given amounts and ratios necessary to avail themselves of the credit during early years.

2) Many types of entities can apply. Various types of entities may use the credit, including S corporations and partnerships which can pass it through to their owners.

1) The benefits outweigh the cost. There is a cost to the pursuit of the R&D credit, as it involves complex calculations. But for many, the tax savings pay for the added cost many times over.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

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