There has been a lot of back and forth since the first iterations of the Tax Cuts and Jobs Act were released on whether it was more or less beneficial to taxpayers. Today those discussions still continue after the last iterations and the bill being signed into law. One of the biggest winners was the wine industry.
The first of the wins for the wine industry was changes to the excise tax on wine. Prior to the Tax Cuts and Jobs Act, all wine produced under 14% alcohol by volume was taxed at $1.07 per gallon and wine produced over 14% alcohol by volume was taxed at $1.57 per gallon. The Tax Cuts and Jobs Act moved the needle on the threshold for the higher rate. Now wine exceeding 16% alcohol by volume is the starting point for the $1.57 per gallon rate. For example, a winery producing 1,000 cases of wine at 15% alcohol per volume would save over $1,100 in excise tax. Unlike other provisions in the tax law that unset after the year 2025, this credit is only for 2018 and 2019.
In addition to adjustment in the bracket for the tax rates, there was also adjustments to the excise tax credits for wineries. Under the previous law, there was a $.90 per gallon credit on the first 100,000 gallons of wine, not including sparkling wine. The credit would also be phased out and potentially not applicable for larger annual productions. Under the Tax Cuts and Jobs Act, starting in 2018, the credit is available to all wineries for the first 750,000 gallons they produce. The credit ranges from $1 per gallon for the first 30,000 gallons, $.90 per gallon for the next 100,000 gallons and then $.535 for the last 620,000 gallons. Like the change to wine qualifying to be taxed at $1.07 per gallon, this provision is only for 2018 and 2019.
If your winery is subject to the 263A UNICAP rules of allocating general operating expenses to the cost of inventory, it maybe time to re-evaluate. Beginning in tax years after 2017, the requirement to apply the UNICAP rules is moved to taxpayers with average gross receipts over $25 million for the prior three years. Although this is a change in accounting method and a special form, Form 3115, must be filed with the IRS for the change, this change would allow more general operating expenses to be deducted in the years incurred for taxpayers with average gross receipts under $25 million.
There are a few adjustments to the tax law when it comes to vineyards specifically. Traditionally when assets have been capitalized, they have needed to be depreciated using the 150% declining balance method. Under the Tax Cuts and Jobs Act, all farming operations are now allowed to use the 200% double declining method. This becomes relevant the farms who opt out of bonus depreciation and do not elect the expense assets under IRC §179. Additionally, specific to vineyards and farms, Net Operating Losses will still be able to be carried back two years but carried forward indefinitely. They will be limited to 80% of taxable income when used. For all other taxpayers, they will not be able to carryback their net operating losses.
There are other changes due to the Tax Cuts and Jobs Act that could potentially affect the tax calculations and reporting for wineries and vineyards, but the changes discussed are specific to the industry.
Be sure to give Fitzpatrick, Johnson & Associates CPAs a call today, (503) 472-0576, to see how we can help you.
Fitzpatrick, Johnson & Associates CPAs is a full service accounting firm with a team of Certified Public Accountants providing tax, financial statement, and bookkeeping services. We are based in McMinnville, Oregon in the heart of Oregon’s wine country, the Willamette Valley. From inception, we have been providing superb and accurate service to local wineries and vineyards.