At the 2018 Montana Brewers Conference, sustainability was a hot topic — and for good reason. By implementing environmentally friendly processes, breweries can actually save money. This includes anything from using recycled bottles to shutting off warehouse lights when you’re closed to staging shipments so that the cooler doors aren’t left open while the truck is loaded.
Breweries have even gone the extra mile to go green by installing rooftop solar panels, maintaining their grounds with goats instead of gas-powered lawn mowers and providing spent grain to local farmers to feed livestock.
The importance of sustainability compelled us to think about another type of sustainability: the longevity of your business. You’re probably well aware of how saturated the craft beer market is. The number of breweries in Montana alone doubled from 2012 to 2017, and brewery employment has grown 21% annually since 2013. This makes any money you can save and reinvest in your brewery crucial to helping you become more competitive and long-lasting.
One approach to success you can leverage is maximizing tax strategies and incentives. Here are three ways to increase cash flow, save money and help ensure the longevity of your business:
1. Research and Development Tax Credits
As a craft brewer, your development of new beers and brewing processes may qualify you for the research and development (R&D) tax credit. In fact, many of the day-to-day activities of microbreweries fit within the credit’s definition, as businesses are no longer required to develop technology new to their industry but rather develop technology or processes new to the brewery itself.
You can qualify for the R&D tax credit if you design and develop new products and flavors; make improvements to the flavor, reliability and performance of existing beers and processes; and use or develop new technology that increases yield or reduces waste, byproducts or environmental impact.
You can also qualify your expenditures, including the amounts paid for supplies used in qualifying research and the wages paid to employees for conducting, supervising or supporting that research.
2. Cost-Segregation Studies
Did you know you can save money from purchasing, constructing or expanding the building that houses your brewery? Even if you did so in a prior year, performing a cost-segregation study and changing your accounting method will allow you to claim the depreciation deductions you missed in previous years, all without having to amend prior-year tax returns.
A cost-segregation study delivers an in-depth, engineering-based analysis of the costs you put into acquiring, constructing or renovating your building. The additional depreciation deductions that come from performing a cost-segregation study are vital money-savers for brewers, ultimately helping them increase current tax deductions, defer income tax, accelerate depreciation and increase cash flow.
3. Tax Cuts and Jobs Act
Not many businesses fully understand how the Tax Cuts and Jobs Act (TCJA) affects them or their industry, and this includes brewers. We fielded a lot of questions at the 2018 Montana Brewers Conference about TCJA. The act absolutely made changes to the brewing and distillery industries, specifically the excise tax and how it impacts costs per barrel.
It’s possible to turn tax reform into an opportunity, so long as you understand the changes and how to leverage them. It is a little difficult without outside help from a tax specialist, but being both compliant with new regulations and able to save money to reinvest in your brewery will give you a leg up over the competition.
We’re here at Wipfli to help breweries understand and leverage TCJA, as well as implement the other money-saving techniques we discussed above. If you have questions or would like to learn more, contact Mike Fuchs at firstname.lastname@example.org and Jennifer Clark at email@example.com or call 406.728.1800.