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Microbrewery taxes simplified; The quick guide to the complicated world of beer taxes

Microbrewery taxes simplified; the quick guide to the complicated world of beer taxes

Taxes for a microbrewery are super complicated. It can be difficult to know what to expect, when in the planning stages of a brewery.  The following article is a guest post by Daniel Hicks that gives a good overview of what you need to know when it comes to paying taxes on the beer you brew.


How Microbrewery Taxes Really Work

A common question I get asked is, “How do microbrewery taxes work?” Depending on who is asking the question, and whether or not we both have enough beer in hand to discuss the process without getting a headache, I give them one of two answers.

The simple answer is breweries (and brewpubs) pay federal taxes on beer that has been sold. Once money has been exchanged for your beer, Uncle Sam wants his cut of the action.

The complicated part of the taxes question is figuring out how much taxes should be paid, when they need to be paid, and the paperwork process involved in making sure everything is reported properly.

But before we go any further…

Disclaimer: Use of any information from this article or any other website referred to in this article is for general information only and does not represent personal or commercial tax advice either express or implied. You are encouraged to seek professional tax advice for tax questions and assistance.

Ok, you’ve been warned.

Down the taxes and operations reporting rabbit hole

If you’ve already been seriously researching how to start a brewery, or if you’re already wading neck deep in the process, no doubt that you’ve heard of the Alcohol and Tobacco Tax and Trade Bureau (TTB). This agency handles all of the Federal regulatory issues, paperwork, and licensing for breweries.

Federal excise taxes for breweries are closely intertwined with another set of documents called the Brewer’s (or Brewpub) Report of Operations (BROP). The BROP reports describe how much beer was made, how it’s being stored (bulk, kegs, bottles/cans), as well as accounting for beer that might have been used for testing, moved from a different location, sent for export, or even destroyed or missing/stolen. Essentially, if you make beer commercially you will need to account for ALL stages of the beer’s life until it’s either drank by a happy customer in your tasting room or shipped out the door for sale.

There are 2 versions of the BROP: Form 5130.9 for Breweries or Form 5130.26. These forms and their instructions can be found on the TTB website at: http://www.ttb.gov/beer/beer-forms.shtml.

The Excise Tax form is known as Form 5000.24.

How much tax you pay, when you pay them, and when the BROP and excise reports need to be filed all depends on how much beer you plan on making and how much taxes you plan on paying over the whole year.

BROP Reports – Forms 5130.9 and 5130.26

Form 5130.9 is a more elaborate operations form based on the old (pre-2015) standard form for breweries. Larger breweries will need to report using Form 5130.9. It been slightly simplified as you no longer need to report on ingredients used.

Form 5130.26 is a simpler form based on the old standard form for brewpubs. Smaller breweries and brewpubs can both use Form 5130.26 for operations reporting.

The amount of tax you owed last year and the amount of tax you plan on owing this year determine which form you should use for your operations reporting.

If your tax liability was more than $50,000 last year (if you were in business) or you plan on it being more than $50,000 this year, you need to file your operations report monthly using Form 5130.9.

If your taxes were less than $50,000 last year and you plan on owing less than $50,000 this year, you can file your operations reports quarterly, and you have the choice of using either Form 5130.9 or Form 5130.26.

The due date for all operations reports is the 15th day after the end of the month in which it is due. For example, if you file your reports monthly, your March report must be filed by April 15. If you file your reports quarterly, your Quarter 3 report (which ends September), must be filed by October 15.

The TTB provides a list of the most common BROP reporting problems on their website. The most common mistakes are from math errors or misinterpreting what is required on the forms. Unfortunately, the forms are not intuitive and mistakes are easy to make. When in doubt, ask. Your TTB agent will be able to provide an official answer to your questions.

We’ve put together a pdf that explains the most common pitfalls people have with the BROP reports. Check it out and download it here.

Excise Tax – Form 5000.24

The standard due dates for filing Form 5000.24 and paying tax is twice per month (semi-monthly) except for September. In September, taxes are due a total of 3 times and these dates vary depending on if you plan on mailing a check or paying by electronic funds transfer (EFT). More information about September rules can be found in the Code of Federal Regulations (CFR) §25.164a.

If you paid less than $50,000 last calendar year and you plan on owing less than $50,000 this year, than you have the option to pay taxes and file your return quarterly.

As of January 1, 2017, if you paid less than $1,000 last calendar year and you plan on owing less than $1,000 this year, then you have the option to pay taxes and file your return annually.

If for some reason your brewery bonds become insufficient (bonds are a whole other discussion) or if you become delinquent on tax payments, you will be “asked” to start pre-paying your taxes. You will then need to file an Excise Tax report and prepay tax before any consumption or sale. Additionally, you will also have to file an additional semi-monthly Excise Tax report that essentially reviews all of the prepaid taxes during that period. Your job as a brewer can quickly turn into that of an accountant if you are required to pre-pay your taxes. Avoid at all costs!

The due dates for the semi-monthly and quarterly tax scenarios can be found at http://www.ttb.gov/tax_audit/fed_ex_tax_due.shtml. The due date for the annual return option is January 14 of the next year.

The standard tax rate for beer is $18 per barrel. You may qualify for a reduced tax rate of $7 per barrel for the first 60,000 barrels you produce if you plan to produce less than 2 million barrels in that calendar year. After you’ve reached 60,000 barrels the tax rate jumps back to $18 per barrel.

Note that an Excise Tax Return form 5000.24 is due even if no tax is owed!

Staying organized is the key

If there’s some advice that I can give to help brewers with their taxes and reporting, the first piece would be to get organized!

Brewers are required by the TTB to keep daily records. However, most of the brewers I’ve talked to don’t do enough organizing up front before the taxes and reports are due. Because of this, the typical amount of time it takes to prepare these reports correctly is one or 2 days.

Invest in more filing cabinets than you think will be necessary or spend some time brushing up on your spreadsheet skills, so that all of the information is at your fingertips when you need it. Few things are more frustrating than trying to hunt down a missing brew log under a looming deadline from the TTB.

The second piece of advice I can offer is to give our product, TTB Tamer, a test drive with a free trial. TTB Tamer is an online tool where all of your brewery operations reports can be stored as they happen. Then when a report is due, all you need to do is click “print” and the correct forms are printed out for you.

After that, just mail in the form with any payments. This can significantly reduce the amount of time required for generating reports and determining how much tax is due.

In addition to Daily Records, Report of Operations, and Excise Tax form, TTB Tamer can help you with state reporting requirements.

More information about TTB Tamer can be found at ttbtamer.com.

So as you can see, tax and reporting requirements are definitely not small parts of the brewery operation. I hope this helps shed some light on what the processes are like.

NOTE: There have been ongoing efforts to reduce the tax rate for small brewers. As of the time of this writing the tax rates changes have yet taken place, but who knows what’s in store for 2017!

ED NOTE: This post was originally published on April 21, 2014. There have been significant enough changes that update this piece and change the date.

Image showing New Dollar Bill by Dave Winer on flickr (CC BY-SA 2.0) was modified from its original state.

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MicroBrewr 066: How to get an SBA loan for a startup brewery with First Community Bank.

MicroBrewr 066: How to get an SBA loan for a startup brewery

Kris Kennedy works in the Small Business Lending Group with First Community Bank in Roseville, California. They were the first financial institution listed as an allied trade member of California Craft Brewers Association.

The U.S. Small Business Administration’s loan program makes it easier for small businesses to get funding from traditional lending institutions. Kris teaches us how to get an SBA loan for a brewery.

All participating banks must go by the SBA guidelines. There are typically 5 criteria to judge worthiness for a loan:

  1. Cash flow – This could be historical or projected. Can you repay the debt?
  2. Economic environment of the industry – Also includes changes to the industry such a new regulations or supply issues.
  3. Collateral – Can include business assets and personal real estate.
  4. How much the borrower is investing – They typically require 20-25% for startups.
  5. Character – They check your credit score including public records such as judgments and liens. Credit score must be at least 680.

Loan funds can be used for a variety of things. Eligible expenditures include:

  • Operating equipment
  • Real estate
  • Tenant improvement to real estate
  • Construction of a new building
  • Refinancing for business debt
  • Purchase of an existing business
  • Working capital

Loan amounts can range from $350,000 to $5 million dollars. Loans are offered in 10-year and 25-year terms. They’re fully amortized, meaning that the monthly payment will be the same through the life of the loan. There’s usually no pre-payment penalty after the first 3 years.

Kris says the ideal candidate should have experience working in a commercial brewery. Planning on opening a brewpub, have restaurant or hospitality experience. Basically, show that your past experience applies to running a brewery.

If you’re a homebrewer wanting to get an SBA loan, it could help to have awards for your beer. So start entering in contests!

Lastly, Kris says, it’s good to work with a lender that has experience in the industry. If you’re in California, Arizona, Nevada, Washington, or Oregon, and you need funds to start or expand a brewery, get in touch with Kris.

“Not every startup is something that a lender is going to be able to finance.” [Tweet This]

 

Listener question:

From Josh Button: How much business experience should I have? What kind of experience or education would you ecommend?

Book recommendation:

Check out the entire list of recommended books, click here.

Your Free Audio Book

An upcoming beer style:

Pale ale

Other resources:

You can reach Kris Kennedy and First Community Bank at:

Sponsor:

Beer

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

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MicroBrewr 022: Expanding to... India! with Arbor Brewing Company.

MicroBrewr 022: Expanding to… India!

Matt Greff fell in love with beer while at university in Germany. He and his wife, Rene Greff, opened Arbor Brewing Company Brewpub in Ann Arbor Michigan in 1995. Since then, they opened a microbrewery in nearby Ypsilanti, Michigan and, just a year and-a-half ago, opened a brewpub in Bangalore, India!

They operate under the principle of “capitalism with a conscience.” Rather than being focused solely on profits, they aim for their business to be good for the community and good for their employees. “The best decision we every made,” says Matt, “was giving our management team a lot of autonomy.”

Do you want to open a brewery? This is Matt’s advice for you to start doing tomorrow:

  1. Develop a vision
  2. Do your homework
  3. Get experience

Matt also talks about:

  • How his love affair with beer started
  • How to use geothermal cooling to reduce energy costs
  • How being named “best brewpub in the Midwest” affected their sales

Support Arbor Brewing Company’s crowdfunding campaign on Indiegogo

ABC Microbrewery Needs a Kitchen

(Deadline: September 4, 2014, 11:59 p.m.)

UPDATE: They met the goal of their fundraising campaign. Woohoo!

Listener question:

From Tanner Munro: Have you thought about pairing beer to food, as a compliment beverage to food?

Book recommendation:

Check out the entire list of recommended books, click here.

Your Free Audio Book

An upcoming beer style:

Session IPA

Other resources:

You can reach Matt Greff and Arbor Brewing Company at:

If you like the show, please subscribe in iTunes or Stitcher. When you subscribe, it’ll let you know when there’s a new episode, you won’t miss a thing!

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

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Start-Brewery-for-125000

MicroBrewr 012: How To Start Up a Brewery for $125,000 w/ Wild Earth Brewing

The Final Episode of the MicroBrewr Podcast

As a lot of you know, my wife and I are currently expecting our first child just about any day now. With him coming, I’ve taken a step back to analyze priorities since I feel like I don’t currently have enough free time to give to him with everything that I’m currently doing. While doing this podcast has been an absolutely amazing experience, after a lot of consideration I’ve come to the sad conclusion that I’m going to need to give it up to be able to focus on my family. I hope that you understand and I just really want to say thanks for all of the amazing support that I’ve had along the way. This will be the final MicroBrewr podcast and I have an awesome interview with David from Wild Earth Brewing to wrap up the MicroBrewr podcast series!

UPDATE: This is not the last episode!!! See episode 13 for more details.

Meet Dave From Wild Earth Brewing

Dave Kilgour was able to start up Wild Earth Brewing in 6 months, fully funded from friends and family and with a total cost of $125,000.  From moving in the fermenter from his garage with a couple guys from town to being the only employee of the brewery, David has planned to keep costs down while still producing awesome beer for the masses.

In this podcast, we discuss:brewerytaproomlogo

  • The dynamics of starting a brewery in a small town
  • How working in a brewery before starting your own is key to your success
  • Discussion on the financial aspect of nano-brewing and the lost costs to increase brewing size
  • Selecting the styles of beer to offer when opening your brewery
  • The process of scaling up your homebrew batches to the full brewery process
  • How to bottle your beer while keeping costs down
  • The benefits of being able to fully fund your brewery without outside investors

Support Dave and Wild Earth Brewing Co!

Check him out at the links below!

Wild Earth Brewery Website

Wild Earth Facebook Page

Wild Earth Twitter Page

Your Free Audio Book

Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

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Raise Money For Your Brewery

MicroBrewr 008: Raise Money For Your MicroBrewery Without Having to Give Away Any Ownership w/ CrowdBrewed

Raise Money For Your Microbrewery Using Crowdfunding

In this podcast I got to interview Mark Slattery from CrowdBrewed which is a crowdfunding platform targeting the craft beer industry.  While I have heard of crowdfunding campaigns on sites like Kickstarter, I still wasn’t sure on the details of how they worked.  Mark walks us through the process and details how you can raise money for your brewery without having to give up any ownership!  While crowdfunding can work really well for starting up a brewery, Mark also discusses how established breweries can use crowdfunding for expansions or if they want to offer a new beer line.  Besides raising money for your brewery, crowdfunding also has a great marketing aspect since your campaign will get attention and those that invest are going to be even more loyal fans in the future.  By the end of this podcast, you’ll know how crowdfunding campaigns work, how to avoid pitfalls of campaigns that have failed and if crowdfunding is right for you!

Some of the topics that we cover:

  • What exactly crowdfunding is and how it works
  • The difference between rewards-based crowdfunding and equity crowdfunding
  • What sets apart the successful crowdfunding campaign versus those that fail
  • Examples of the best performing rewards that you can offer in your campaign
  • The best time to do a crowdfunding campaign if you’re starting up a brewery
  • How established breweries can use crowdfunding for that upcoming expansion or product offering
  • The marketing value of a crowdfunding campaign
  • The next steps on what to do if you want to start up a crowdfunding campaign

Find Out More About CrowdBrewed and Links to Other Resources

crowdfunding-microbrewry

CrowdBrewed Website

CrowdBrewed Twitter and Facebook Pages

Connect with Denver Beer Guy on Twitter

BrewDog – Scotland Brewery that Used Equity Crowdfunding To Raise Money

J Wakefield Brewery – Broke Craft Brewery Crowdfunding Record Raising $112,000

Your Free Audio Book

Build Your Social Media Presence Before Starting Your Campaign

To help with those crowdfunding campaigns, you’ll want to already have a good social media following to get the word out once you start the campaign.  Since time and money is tight, I’ve put together an e-book with six free social media tools that you can use to build your presence online and get your beer into the hands of more people.  As my thanks for visiting MicroBrewr, simply click the button below and I’ll send you the e-book free to your email.

 

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Support MicroBrewr

Help keep MicroBrewr on the air. CLICK HERE for ways you can help.

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