Asheville is widely known as “Beer City, USA,” with its booming craft brewery scene attracting tourists and locals alike. Running a craft brewery is both rewarding and complex, especially when it comes to taxes. From ingredient costs to equipment depreciation, brewery owners have unique tax opportunities and challenges. This guide explores essential tax strategies to help Asheville’s brewery owners maximize deductions, reduce liabilities, and stay compliant.

1. Deduct Brewing Equipment Costs

Craft breweries require substantial investments in equipment, such as fermenters, kegs, and canning lines. The IRS allows you to deduct these costs through:

  • Section 179: Deduct the full cost of qualifying equipment in the year it’s purchased (limit: $1,160,000 in 2024).
  • Bonus Depreciation: Deduct 100% of equipment costs, including used equipment, purchased and placed in service during the tax year.

Example:
An Asheville brewery spent $150,000 on brewing tanks and fermenters. By using Section 179, they deducted the entire cost in 2024, saving $33,000 in federal taxes.

Pro Tip:
Document installation dates and retain receipts for all equipment purchases to ensure compliance.

2. Claim R&D Tax Credits for Recipe Development

Experimenting with new beer recipes or improving brewing processes qualifies as research and development (R&D) under federal tax law.

What Qualifies for R&D Credits?

  • Developing seasonal or experimental brews.
  • Improving fermentation processes.
  • Testing new packaging methods.

Case Study:
A small Asheville brewery spent $20,000 testing recipes for a new IPA. They claimed a $2,000 R&D tax credit, directly reducing their tax liability.

Pro Tip:
Keep detailed records of expenses related to experimentation, including labor and ingredient costs.

3. Deduct Ingredient Costs

The cost of hops, barley, yeast, and other brewing ingredients is fully deductible as a cost of goods sold (COGS).

Eligible Deductions Include:

  • Raw ingredients for brewing.
  • Packaging materials like cans, bottles, and labels.
  • Cleaning and sanitizing supplies for brewing equipment.

Example:
An Asheville brewery spent $50,000 on ingredients and packaging materials in 2024. By deducting these costs as COGS, they reduced their taxable income and saved over $11,000 in taxes.

Pro Tip:
Track inventory carefully to ensure accurate reporting of COGS on your tax return.

4. Utilize Tax Benefits for Taproom Operations

If your brewery operates a taproom, there are additional tax-saving opportunities:

  • Meals and Entertainment: Deduct 50% of the cost of promotional events and tastings held in your taproom.
  • Utilities and Maintenance: Deduct utilities, repairs, and other operational costs for the taproom.
  • Employee Wages: Claim the Work Opportunity Tax Credit (WOTC) if you hire employees from specific target groups, such as veterans or long-term unemployed individuals.

Example:
A brewery hosting weekly trivia nights deducted $5,000 in promotional costs and $15,000 in taproom utilities, saving $4,400 in taxes.

Pro Tip:
Categorize taproom expenses separately from brewery production costs for easier accounting.

5. Maximize Energy Efficiency Tax Credits

Breweries consume significant energy, but upgrading to energy-efficient systems can lead to tax credits.

Eligible Upgrades Include:

  • Solar panels or renewable energy systems.
  • High-efficiency boilers and refrigeration units.
  • LED lighting systems.

Case Study:
An Asheville brewery installed a $100,000 solar panel system, claiming a $30,000 federal tax credit and saving an additional $10,000 annually on utility costs.

Pro Tip:
Check for local incentives through Buncombe County or Blue Horizons Project to stack savings.

FAQs for Asheville Brewery Owners

1. Can I deduct beer donated to local events?
Yes, donated beer qualifies as a promotional expense, as long as it’s documented and used for business marketing purposes.

2. Are brewery tours and tastings tax-deductible?
Partially. Expenses related to tours and tastings that promote your brand can be deducted as marketing or advertising costs.

3. How do I handle excise taxes?
Breweries must pay federal and state excise taxes on beer production. Work with a tax advisor to ensure compliance with reporting and payment deadlines.

Common Tax Mistakes Brewery Owners Should Avoid

  1. Failing to Track Inventory:
    Misreporting COGS due to poor inventory management can lead to IRS penalties.
    Solution: Use brewery-specific software to track inventory and production.
  2. Overlooking Depreciation:
    Some brewery owners fail to claim depreciation on equipment, missing out on valuable deductions.
    Solution: Maintain a detailed asset register and consult a tax advisor annually.
  3. Ignoring Energy Efficiency Incentives:
    Upgrading equipment without exploring tax credits or rebates can result in missed savings.
    Solution: Research local and federal programs before making major purchases.

Checklist for Tax Savings in Asheville Breweries

  • Deduct equipment costs using Section 179 or bonus depreciation.
  • Claim R&D credits for recipe development and process improvements.
  • Track ingredient and packaging costs as part of COGS.
  • Deduct operational expenses for taproom promotions and maintenance.
  • Explore energy efficiency tax credits for upgrading systems.

Advanced Tax Strategies for Breweries

  1. Consider Cost Segregation Studies:
    Separate building components, such as cooling systems and plumbing, for accelerated depreciation.
  2. Plan for Multi-State Sales:
    If you distribute beer outside North Carolina, ensure compliance with multi-state tax obligations.
  3. Incorporate Sustainability Into Branding:
    Highlight your use of energy-efficient systems or renewable energy to attract eco-conscious customers and investors.
  4. Hire Strategically:
    Utilize tax credits for hiring employees from underrepresented groups or apprenticeship programs.

Conclusion:
Asheville’s craft brewery owners face unique tax challenges, but with proactive planning, you can reduce liabilities and reinvest in your business. From deducting equipment to claiming R&D credits, Polaris Tax & Accounting can help you navigate the complexities of brewery taxation.

Contact our Asheville office today for expert guidance tailored to your brewery’s needs.