Impact of Tax Law Changes on Wineries
Here are some of the major provisions in this newly signed legislation* that will impact the wine industry as we see them now - please consult your tax advisor for specific details in your situation :
1. Elements of the "Craft Beverage Modernization and Tax Reform Act of 2017" which are incorporated into the tax law, included 2 big benefits for wineries:
a. Reduced Excise Taxes - provides a $1 credit per gallon for the first 30,000 gallons produced; $0.90 for the next 100,000 gallons; and then $0.53.5 for the next 620,000 gallons. Sparkling wine is eligible for these credits beginning in 2018. (1) Lower rates also apply to wines with up to 16% alcohol.
b. Capitalized Inventory Costs - no longer include the aging period for bottled wine
2. New Corporate Income Tax Rates for " C" Corporations - flat tax of 21% applies versus graduated scale going to a maximum rate of 35% for companies earning over 15 million dollars beginning for years after 12/31/17.
3. Deduction of 20% of "Qualified Business Income" for certain other entities- based on net income of the non "C" corporation for years after 12/31/17.
Note the computation described in the act is complex and is subject to income limitations and special treatment for partners, etc. More details will be provided as these provisions become clearer.
A non-corporate taxpayer, including a trust or estate, who has qualified business income (QBI) from a partnership, S corporation, or sole proprietorship is allowed to deduct:
- (1) the lesser of: (a) the “combined qualified business income amount” of the taxpayer, or (b) 20% of the excess, if any, of the taxable income of the taxpayer for the tax year over the sum of net capital gain and the aggregate amount of the qualified cooperative dividends of the taxpayer for the tax year
- (2) the lesser of: (i) 20% of the aggregate amount of the qualified cooperative dividends of the taxpayer for the tax year, or (ii) taxable income (reduced by the net capital gain) of the taxpayer for the tax year.
Limitations apply to service businesses when taxable income exceeds $157,500 for an individual or $315,000 if married filing jointly:
For pass-through entities, other than sole proprietorships, the deduction cannot exceed the greater of:
- (1) 50% of the W-2 wages with respect to the qualified trade or business (“W-2 wage limit”), or
- (2) the sum of 25% of the W-2 wages paid with respect to the qualified trade or business plus 2.5% of the unadjusted basis, immediately after acquisition, of all “qualified property.” Qualified property is tangible, depreciable property which is held by and available for use in the qualified trade or business at the close of the tax year, which is used at any point during the tax year in the production of qualified business income, and the depreciable period for which has not ended before the close of the tax year.
But note: A farming business that elects not to be subject to certain interest provisions of Section 163(j) would have to depreciate its property with a recovery period of 10 years or more under the alternative depreciation system (and thus, such property would NOT be eligible for bonus depreciation).
5. Section 179 expensing increased to $1 Million . For property placed in service in tax years beginning after Dec. 31, 2017, the maximum amount a taxpayer may expense under Code Sec. 179 is increased to $1 million (from $500,000), and the phase-out threshold amount is increased to $2.5 million of new asset purchases.
6. Limitation on Interest Expense Deductions - The provision would limit the net interest expense deduction for every business, regardless of form, to 30% of adjusted taxable income. The provision would require the interest expense disallowance to be determined at the tax filer level.
7. Repeal of deduction for Income Attributable to Domestic Production Activities.
8. Limitations on like-kind exchanges of real property - real property held primarily for sale is no longer eligible for like-kind exchange treatment if exchanged after 12/31/17.
9. Increase in Gross Receipts test for Cash Basis Taxpayers - starting in years after 12/31/17 -A corporation or partnership meets the gross receipts test for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $25,000,000. There are also new rules for inventory. (SEC. 13102. SMALL BUSINESS ACCOUNTING METHOD REFORM AND SIMPLIFICATION.)
10. Increase in Estate Tax Exclusion - from 5 to 10 million for estates of decedents dying or gifts made after December 31, 2017, and before January 1, 2026. (SEC. 11061. INCREASE IN ESTATE AND GIFT TAX EXEMPTION.)
11. Other business changes - modifications to the Net Operating Loss Deduction, and elimination of corporate Alternative Minimum Tax, reduction in deductible fringe benefits paid by employers, no deduction for Entertainment Expenses afer 2017.
NOTE: This is brand new legislation - please contact us for details on your specific situation.
Please contact us for details on your specific situation
* This law was signed by the President on 12/21/2017
(1) SEC. 13804. REDUCED RATE OF EXCISE TAX ON CERTAIN WINE. Amending Code Section 5041(c)