Deducting Home Brew Expenses

[Beernik]

I do not suggest that people create sham businesses in order to write off their homebrew hobby. That isn't smart for obvious reasons.

The question I was posing is whether someone who is engaged in a legitimate (i.e. legal) consulting activity can deduct the related expenses. It seems to me that they would, but that they would have to keep adequate records to support that deduction.

I would say "Yes... But".

Yes you can deduct the consulting activities. But the business is the "consulting services" not the "brewing." Such as renting a space to teach a class or buying parts to teach someone how to build a controller.

Anything that is specifically purchased and used to make a beer is not deductible at all if it goes into the making of a beer. Homebrewing is by definition not a legal business. And while it is required to report income generated from any illegal business (Al Capone) you cannot deduct Federally illegal business expenses (medical marijuana).


Where is becomes questionable is things that are both homebrewing related and consulting related. If you keep jars of malted grain for demonstration & consulting educational purposes it might be deductible. Equipment you have that you use for consulting and for personal use may be partially deductible but you are pushing the bounds of grey areas.

 

[TaxGuy]

Theoretically, but if you also use the same equipment for personal use, then it becomes a bit sticky. Ask anyone who's ever tried to deduct a home office, or a personal vehicle also used in business activities.

In the OP you seemed to be suggesting that you could deduct your hobby expenses by offering some token "consulting services" (at least that's how it came off to me), and which is just asking for trouble. Even if you ran a full-scale homebrew shop, you couldn't just deduct all of your expenses that were strictly personal.

If the business was a sham and used solely generate losses, you are asking for BIG trouble. However, if is a legitimate activity engaged in for profit (as defined under IRC section 183, respective Treasury Regulations and applicable case law), there's nothing inherently wrong with generating a loss in a start-up period. Its not uncommon for a business to lose money periodically, especially in its first few years of operations.

 

[TaxGuy]

I would say "Yes... But".

Yes you can deduct the consulting activities. But the business is the "consulting services" not the "brewing." Such as renting a space to teach a class or buying parts to teach someone how to build a controller.

Anything that is specifically purchased and used to make a beer is not deductible at all if it goes into the making of a beer. Homebrewing is by definition not a legal business. And while it is required to report income generated from any illegal business (Al Capone) you cannot deduct Federally illegal business expenses (medical marijuana).


Where is becomes questionable is things that are both homebrewing related and consulting related. If you keep jars of malted grain for demonstration & consulting educational purposes it might be deductible. Equipment you have that you use for consulting and for personal use may be partially deductible but you are pushing the bounds of grey areas.

I mostly agree with you, and I think it would largely depend on how you structure the education. For example, Midwest Supplies offers free classes once a month or so on homebrewing, winemaking, etc. They will actually brew beer during that class. Are you suggesting that they would not be able to deduct the costs of the extract/grains/hops/yeast etc used in that demonstration?

 

[libeerty]

I do not understand the point of this thread. If you run a consulting business, you may be able to make deductions. If you do not, then your homebrewing is a hobby and nothing can be deducted. There isn't this large gray area between the two, or at least I can't imagine anyone running a successful homebrewing consultant business. Most people learn from friends or learn from books.

Who here is a homebrewing consultant? Anyone?

 

[tphjr]

Who here is a homebrewing consultant? Anyone?

Not me, I'm just a ordinary Accountant type consultant who brews beer. And I know for a fact that I can't deduct any of my brew gear or brew supplies because they have nothing to do with my business.

If I were teaching brewing classes, all of the gear & supplies directly related to the classes would be deductable. But if I used the same gear for my own homebrewing then only the percent of usage involved in the classes would be deductable.

So, it goes like this, assuming I taught 4 brewing classes a month and brewed for myself once a month:

4/5 of the value of the equipment shared between both activities would be tax deductable.
100% of the value of the equipment used for the classes ONLY would be deductable.
And 100% of the equipment not used for classed would not be dedutable.

But it gets tricky - if I taught classes then brought the beer home for consumption the deduction would be way in the grey area and would probably fail an audit because I would be brewing for home.

 

[Beernik]

I mostly agree with you, and I think it would largely depend on how you structure the education. For example, Midwest Supplies offers free classes once a month or so on homebrewing, winemaking, etc. They will actually brew beer during that class. Are you suggesting that they would not be able to deduct the costs of the extract/grains/hops/yeast etc used in that demonstration?

I would say they can deduct it because it is both a promotional expense for the "homebrew supply business", and it's a loss of inventory.

As an individual or consultant, it becomes sketchy.

On the other hand, the "alcohol manufacturing process" for a homebrewer is the pitching of the yeast. If you don't pitch the yeast, it is not a regulated fermented beverage. If you do pitch yeast, it is a regulated fermented beverage. Soooo... If you make a wort or a must and don't pitch yeast, it should be fully deductible. Of course if this is your plan, have photographic evidence you dumped the wort or the auditor may not believe you.

 

[Billy-Klubb]

I do not understand the point of this thread. If you run a consulting business, you may be able to make deductions. If you do not, then your homebrewing is a hobby and nothing can be deducted. There isn't this large gray area between the two, or at least I can't imagine anyone running a successful homebrewing consultant business. Most people learn from friends or learn from books.

Who here is a homebrewing consultant? Anyone?

I made a bunch of business cards on my 'puter and handed them out to folks & dropped them in craft 6ers, but no one's called yet. and I'm not charging, just spreading the good word on the home brew.


wait...I don't think I answered your question. maybe... I... nope. I lost it.

 

[Hogarthe]

can I deduct the time I spent reading this thread from my taxes?

 

[Phunhog]

I asked this same exact thing a few years ago.....https://www.homebrewtalk.com/f14/home-brewing-tax-deductions-233293/ I am still pouring beer at charity beer festivals a few times a year and selling t-shirts. Most of the t-shirt sales occur at the beer festival so wouldn't the beer than be considered a business expense? Much like a banner, table, jockey box, etc? Can't really sell my shirts at a beer festival without giving away beer.....

 

[Randy_Bugger]

Can a pro brewer deduct his beer bar tab for purposes of R&D ?

 

[Phunhog]

Can a pro brewer deduct his beer bar tab for purposes of R&D ?

I am sure that when a pro brewer goes to Europe for business part of it is deductible. So I could see that a beer bar tab could be deductible especially if he talks business with another pro brewer. Business people deduct meals all the time....as long as business is conducted during the meal.

 

[Mb2658]

How about being honest and paying the taxes that you actually owe? Novel idea, I know. I'm no fan of taxes but one of the biggest problems with society today is people trying to skirt the system. If you make the jump to being a professional brewer, then you can worry about what a brewer can legitimately deduct as a business expense.

 

[betarhoalphadelta]

How about being honest and paying the taxes that you actually owe? Novel idea, I know. I'm no fan of taxes but one of the biggest problems with society today is people trying to skirt the system. If you make the jump to being a professional brewer, then you can worry about what a brewer can legitimately deduct as a business expense.

If they're legally justifiable business expenses, you *don't* actually owe those taxes. This thread is about figuring out whether it's legally justifiable or not.

 

[reinstone]

If they're legally justifiable business expenses, you *don't* actually owe those taxes. This thread is about figuring out whether it's legally justifiable or not.

It's not.

 

[Phunhog]

How about being honest and paying the taxes that you actually owe? Novel idea, I know. I'm no fan of taxes but one of the biggest problems with society today is people trying to skirt the system. If you make the jump to being a professional brewer, then you can worry about what a brewer can legitimately deduct as a business expense.

Agree. Last year I made a little bit of money selling my "brewery" t-shirts. I paid state sales tax, as well as state and federal income taxes on my "earnings" of a few hundred dollars. With that being said I have no problems taking every legal deduction offered to me. If I sell my t-shirts at a special event wouldn't all costs associated with this "work event" be deductible since I am technically doing business (selling shirts)?

 

[Mb2658]

Agree. Last year I made a little bit of money selling my "brewery" t-shirts. I paid state sales tax, as well as state and federal income taxes on my "earnings" of a few hundred dollars. With that being said I have no problems taking every legal deduction offered to me. If I sell my t-shirts at a special event wouldn't all costs associated with this "work event" be deductible since I am technically doing business (selling shirts)?

I agree whole heartedly. Every person should take the deductions that they are legally allowed. The tax code is ridiculously complex and need to be changed in my opinion. That being said, I have little tolerance for people who try to get creative and take deductions that aren't allowed just so they can avoid paying taxes. Homebrewing by definition is a hobby. Are you going to deduct your golf clubs and claim that you are a golf consultant? Are you going to deduct the money that you spend on hookers and blow and claim that you are a nightlife consultant?

 

[MarshmallowBlue]

Are you guys joking? Commuting is DEFINITELY Deductible on a schedule C. I do it every year. TurboTax even has a field for it. Weather its Gas money (lots of math involved unless you have a car that's just for traveling to clients, but still lots of math and lots of records to keep). I deduct the cost of my Commuter Passes.

Anyways. This trying to deduct homebrewing expenses on your taxes just seems like your asking for an audit. You saved money on buying that much volume of beer / wine etc... Leave it at that.

 

[Ridire]

Are you guys joking? Commuting is DEFINITELY Deductible on a schedule C. I do it every year. TurboTax even has a field for it. Weather its Gas money (lots of math involved unless you have a car that's just for traveling to clients, but still lots of math and lots of records to keep). I deduct the cost of my Commuter Passes.

Anyways. This trying to deduct homebrewing expenses on your taxes just seems like your asking for an audit. You saved money on buying that much volume of beer / wine etc... Leave it at that.

Cost of commuting is absolutely not deductible. This is not even debatable. You get into some grey area if you work from home but then your expenses are no longer commuting if they are deductible.

http://www.irs.gov/taxtopics/tc514.html

TurboTax asks for your commuting miles because there is a place on Form 2106 to put your total miles, your deductible miles and your commuting miles. I highly doubt TurboTax is deducting the miles you list as commuting.

 

[Spartan1979]

Who here is a homebrewing consultant? Anyone?

Most of here are homebrewing consultants. Of course, no one pays for our services. If we tried, the next guy would be happy to provide free advice.

 

[TyTanium]

Do we really want the IRS looking at our hobby?

No. Please don't give them a reason to.

 

[distributistdad]

It won't work.

Certainly seems like it might in the short term. Setup a consulting business - you can create a website for $25/year (another expense you could deduct) along with products that you could make. Think keggles, stir plates, etc. Things you could build and turn for a profit. You could also (with a small amount of capitol) buy some things in bulk and resell them individually (corny kegs, parts, mills, maybe even grains or hops). I have about a dozen buddies that save all their pop off amber bottles for me. I wash them, remove all the labels and package them up - then sell them on Craigslist to other homebrewers.

It'd be easy to make a profit in the homebrewing industry without licences and without actually selling any beer (though if you were trying to make a go at this in most states you'd need a sales tax permit). Then, you *might* be able to claim you have a business and deduct related expenses (i.e. ingredients, equipment) calling it research and development for your products / services.

The issue you'll run into is that this would no doubt be an ongoing thing, and consistently showing business losses on your tax return is probably not a good idea.

My father-in-law manages our state dept. of revenue's audit department. He has told me many times that the way they they determine individuals they are going to field audit is by looking for trends in personal returns (i.e. business losses reported year after year when your primary income is reported on a W-2).

Even if you do get away with it for your whole life, it's not honest. And I for one would prefer honesty and a clear conscience any day to saving a few tax dollars.

 

[Phunhog]

Do we really want the IRS looking at our hobby?

No. Please don't give them a reason to.

Every hobby though has a legitimate "business" side to it. Let's say you set up a legitimate side business( FBN, tax id, seperate bank account) teaching people how to homebrew. Even if it is only a few hundred dollars...you are required to pay taxes on that income and you are entitled to take any deductions that are related to earning that income. In this case it would be brewing ingredients and equipment.

 

[HawksBrewer]

Man, it stinks in here.

:sniff sniff:

Smells like trolls, you know, the green ones that hide under the bridge w/ perpetual snot hanging from their noses? Yeah, those.

 

[MarshmallowBlue]

Cost of commuting is absolutely not deductible. This is not even debatable. You get into some grey area if you work from home but then your expenses are no longer commuting if they are deductible.

Im not talking about driving, I'm talking about public transit including busses trains etc. which Not only I but everybody in my office deducts. I'll be forward when telling you that you don't get much back. I also don't have a 1040 or W2, Us contract folk get 1099 Miscs!

 

[ricksam]

Man, it stinks in here.

:sniff sniff:

Smells like trolls, you know, the green ones that hide under the bridge w/ perpetual snot hanging from their noses? Yeah, those.

WE'VE BEEN INFILTRATED!!

 

[MarshmallowBlue]

The Evil IRS is Here! Everybody hit the dirt! They're passing out audits left and right! The IP's have been logged! Get you're receipts out form the past 7 years of everything.

 

[Ridire]

Im not talking about driving, I'm talking about public transit including busses trains etc. which Not only I but everybody in my office deducts. I'll be forward when telling you that you don't get much back. I also don't have a 1040 or W2, Us contract folk get 1099 Miscs!

Yeah, you can get up to $200 - $250 of before tax reimb. for public transportation. General rule for commuting, though, is that it is not deductible.

 

[Phunhog]

I donated some homebrew for a charity beer tasting. After researching IRS laws I plan on taking an "in kind donation" deduction for the supplies (grain, hops, yeast). According to the IRS you can deduct your costs for the raw ingredients only...not for your time. They give an example of someone who bakes cookies for a charity function. They are allowed to take an "in kind" donation for the money spent for the ingredients to make the cookies.

 

[Misplaced_Canuck]

Cost of commuting is absolutely not deductible. This is not even debatable. You get into some grey area if you work from home but then your expenses are no longer commuting if they are deductible.

http://www.irs.gov/taxtopics/tc514.html

TurboTax asks for your commuting miles because there is a place on Form 2106 to put your total miles, your deductible miles and your commuting miles. I highly doubt TurboTax is deducting the miles you list as commuting.

There's a big difference between "commuting" and "traveling". For a while I was doing IT consulting work on W2 in Raleigh, traveling from Columbia on a weekly basis. My traveling expenses were deductible. If you are doing consulting work in a remote metropolitan area for a limited amount of time, your traveling expenses may be deductible: http://biztaxlaw.about.com/od/businesstaxdeductions/f/commutingdeduction.htm (Point #2).

I did have to pay temporary living expenses (also deductible).

Anyways... I was also a homebrewing consultant for a while, and yes, I was able to write off my expenses [this was in Canada, so your mileage may vary]. The idea is that the consulting business had to show revenue (and ultimately a profit) from that line of business.

Homebrewers generally won't generate much of a revenue from that line of business, and as such, would likely have to drop that line of business from their portfolio (I can't think of any other way to say it).

MC

 

[TheInnKeeper]

Curious on everyone's thoughts here, we have a LLC(not sole proprietorship) where we manage other peoples vacation rentals, run our own vacation rentals as well as other various related side gigs like offer notary services, supply deliveries, consulting, light cleaning repair and construction.

We commonly entertain clients, owners & renters including limited complementary food and beer for marketing and entertainment.

Could I get away with writing off 50% of my all grain and yeast costs?

 

[Twinkeelfool]

Are you licensed to sell alcohol? If not you probably should keep it quiet if you’re selling it

 

[TheInnKeeper]

Are you licensed to sell alcohol? If not you probably should keep it quiet if you’re selling it

Any beer and food we provide is 100% complimentary for clients and guests as part of marketing, advertising and\or entertainment purposes which traditionally would be considered a legitimate write off.

 

[MaxStout]

You might be able to pull it off as a business writeoff, at least partially. Like you could with food being served. You could clump it all together as "entertainment," but if you're ever audited, you will need to come up with receipts.

But the problem may be licensing, or lack thereof. Even if you're not actually selling the beer, you're giving it away as part of a promotion. The expectation of business (or leads, etc.) from some of those clients could be viewed as "consideration" (something of value) in return for the beer.

 

[TheInnKeeper]

You might be able to pull it off as a business writeoff, at least partially. Like you could with food being served. You could clump it all together as "entertainment," but if you're ever audited, you will need to come up with receipts.

But the problem may be licensing, or lack thereof. Even if you're not actually selling the beer, you're giving it away as part of a promotion. The expectation of business (or leads, etc.) from some of those clients could be viewed as "consideration" (something of value) in return for the beer.

Right exactly, it kind of falls into a grey area by my thinking.

No where in our written or published marketing, advertising or anywhere does it mention ANYTHING about "free" food or drinks so IMO it should not be considered a core business function or something we use "lure" clients. Its simply just something we provide to existing clients\renters unannounced to seperate ourselves from our competition or "sweeten" the deal off the record if you will.

Just looking to offset a couple thousand dollars a year for what is essentially giving away my home brew as an off the record perk for our loyal clientele

 

[Twinkeelfool]

I’m not sure about where you live but “reasonable” and “common sense” don’t really describe the tax office lol

 

[MaxStout]

Right exactly, it kind of falls into a grey area by my thinking.

No where in our written or published marketing, advertising or anywhere does it mention ANYTHING about "free" food or drinks so IMO it should not be considered a core business function or something we use "lure" clients. Its simply just something we provide to existing clients\renters to seperate ourselves from our competition or "sweeten" the deal off the record if you will.

It could be a black-and-white area if your promotional use violates your state alcoholic beverage laws. That would depend on the definitions within your state's licensing laws and those laws vary state to state. You may be providing something completely gratis--maybe your activity is exempt from licensing requirements. But maybe it's not. It might be wise to find out.

 

[BrewnWKopperKat]

Curious on everyone's thoughts here, we have a LLC(not sole proprietorship) where we manage other peoples vacation rentals, run our own vacation rentals as well as other various related side gigs like offer notary services, supply deliveries, consulting, light cleaning repair and construction.

We commonly entertain clients, owners & renters including limited complementary food and beer for marketing and entertainment.

Could I get away with writing off 50% of my all grain and yeast costs?

My thoughts: double check any answers you get here with the LLCs attorney and/or accountant.

 

[grampamark]

Hmm. I‘m a grain farmer. Maybe I should be writing off my grain purchases as “test plot samples”.

With my luck I‘d get an auditor that knew the difference between malted and unmalted grain.

 

[bracconiere]

My thoughts: double check any answers you get here with the LLCs attorney and/or accountant.

LOL, or you could just skip the middle man, and ask the ATF, and IRS.....

 

[bracconiere]

Hmm. I‘m a grain farmer. Maybe I should be writing off my grain purchases as “test plot samples”.

With my luck I‘d get an auditor that knew the difference between malted and unmalted grain.

as long as you use the excuse that your making organic fertilizer, and piss in the field....sounds solid!