What can you deduct for your winery in 2024?
When you start a winery, it’s essential that you work with a qualified accountant to make sure you are structuring your winery in the most tax-efficient way and taking advantage of all the deductions available to you. You will want to make sure you are taking advantage of any agricultural tax credits and exemptions that might apply, investigate whether you qualify for research and development credits, identify the inventory method that makes the most sense for taxes, and make sure you are taking maximum advantage of depreciation.
But this post isn’t about the big winery deductions. It’s about some of the smaller expenses that are tax deductible that you may have previously overlooked.
We’ve come up with a winery-specific list of tax deductions for 2024 that a general accountant or your in-house bookkeeper might miss.
Quick reminder: Before we start, it’s worth stating that for an expense to be a business expense, it must be ordinary and necessary. In the words of the IRS, an ordinary expense is common and accepted in your industry. A necessary expense is helpful and appropriate for your trade or business. Make sure your expenses fit both criteria.
Here’s our list of tax-deductible expenses that you want to make sure that you’re not missing.
Business travel
As a winery owner, various activities like industry events, equipment purchasing, and vendor meetings may take you beyond the vineyard. Travel for these purposes is generally tax-deductible. Expenses like airfare, hotels, taxis, Ubers, tolls, and parking can be deducted. That applies whether the travel expenses are for you as the owner or for your employees.
If you are taking a trip that combines business and personal reasons, then you may only be able to deduct the portion of the travel expenses that qualifies as business-related.
Travel meals
Meals during work-related travel, including takeout, are 50% tax-deductible.
Per Diem
You may want to ask your accountant about using a “per diem” allowance for travel rather than using actual expenses. What per diem means is that you will be writing off a set daily allowance for travel expenses and travel meals, rather than actual expenses.
The US General Services Administration sets rates every year for federal employees, which can be adopted in your own business.
This approach offers great flexibility to employees (i.e., any amount spent above the rates is their responsibility) and simplifies tax deductions for business owners.
Per diem payments are tax-deductible for the business but not taxable income to the employee provided you properly account for those expenses.
Just make sure that your per diem rates align with or are below federal standards to keep reimbursements non-taxable for employees.
Business meals
Business meals are 50% tax deductible if there is a true business reason for the meal. Unfortunately, the coffee that you grab for yourself on your way to work is not considered a legitimate business meal. Keep your receipts and note who you were with and the purpose of the meal. You may also be opening yourself up to IRS scrutiny if you claim every time you go out to dinner with your spouse/business partner is a business meal.
Vehicle expenses
If your work involves cruising around town to meet customers, sampling new wines, or attending conferences, you can leverage your car expenses for valuable deductions.
To learn more about deducting vehicle expenses, visit our blog post on understanding business vehicle expenses.
The important thing to know is that if you use a vehicle for both work and personal use, then you need to track your business miles and personal miles. Your accountant can help you decide whether you want to use the actual expense method or the standard mileage rate method when calculating the deduction on your tax return, but in either case, you will want a log of your business miles and total miles.
Using the standard mileage rate method saves you from tracking each vehicle expense, so keep that in mind. If you choose to use the actual expense method, you need to track ALL of your vehicle-related expenses (whether you pay for them out of a business or personal account) and then those expenses get allocated between personal and business at tax time. Expenses to track include fuel, insurance, registration, and maintenance.
Industry events
Other tax-deductible items can include things related to the industry, such as wine competitions, wine purchases, and wine conferences. Most purchases related to these events will be claimable.
Professional development and education expenses
The wine industry requires constant learning and updating of skills. Luckily, the expenses associated with such activities are deductible as a business expense on taxes. This includes subscriptions to books and magazines, coaching and courses, and credit courses.
Just a note that education is generally deductible if it is relevant to the job you are currently holding. Education for a different career is generally not tax deductible.
Wine purchases
Wine that you purchase for market and production research is a tax-deductible expense. Trips to visit other wineries and winemakers for research would also be tax deductible.
Dues and subscriptions
Any dues or subscriptions you have related to your winery can be claimed. This includes business publications, memberships in wine associations, or your local chamber of commerce.
Charitable contributions
Charitable contributions are not deductible by your business. If you do make an otherwise eligible contribution to a 501(c)3 organization through your business, that contribution can flow through to your personal return and may be itemized on Schedule A. So if it’s a true charitable contribution, it probably makes sense to use personal funds.
That said, advertising and sponsorships are legitimate tax deductions. A payment to an organization, including a 501(c)3 charitable organization is considered advertising or a sponsorship when it is directly related to a business and made with a reasonable expectation of a related economic return. This could include donations made to promote a brand or increase customer engagement or sales.
So whenever possible, make sure you are purchasing advertising or a sponsorship, not just donating.
Also, keep in mind that the same expense cannot be claimed both as a personal charitable contribution and a business expense.
Home office
Don’t overlook home office expenses. For non-incorporated businesses who file Schedule C, home office expenses are not paid for with business funds, but they are calculated on your tax return.
To qualify for a home office tax deduction, you need to ensure that the space is used regularly and exclusively for conducting business. This means that the area is your principal place of business or is used regularly to meet with clients, customers, or patients. Additionally, the space should be used solely for business purposes and not for personal activities.
You will need to figure out the percentage of your home devoted to your business activities, utilities, repairs, and depreciation—your accountant can help with this. Here are a few deductible items:
Home office furniture, supplies, and decor: Your desk, chairs, lamps, and other home office necessities are all tax write-offs.
Property repairs: You can write off maintenance and repair costs for your property directly.
Utilities: A portion of your electricity bill counts, along with water, sewer, gas, and internet.
Property insurance: Whether it's rental or homeowners insurance, you can write off a portion through your home office deduction.
Mortgage interest: Yep, your mortgage interest is deductible!
Property taxes: Don’t miss this if they are paid for via your mortgage.
Depreciation: A portion of the cost basis of your home is deductible as depreciation.
If you do not track all of your home expenses, you can still use a simplified method for the home office deduction, which is based on the square footage of your office.
Cell phone
Deducting the business phone bill is common practice. However, if you use your personal phone for business activity, you can expense some of these costs as well. For example, if you spend about 40% of your time on your smartphone for business, then you can deduct 40% of the related expenses.
Health insurance
Business owners are typically allowed to deduct health insurance premiums as a business expense on their income tax returns. To qualify for the self-employed health insurance (SEHI) deduction, the owners should not be eligible for coverage through another employer.
A note on S-Corps and accountable plans
If you are an S-Corp, you will need to have the business reimburse you for several of these expenses in this list, rather than claiming them directly on your tax return. These expenses include home office, vehicle expenses, cell phone, and other expenses paid for personally.
These expenses should be accounted for under what’s called an “Accountable Plan.” Accountable plans work on the simple concept that if reimbursement payments to business owners and their employees are properly claimed and documented, they are not taxable to the recipient.
To offer an accountable plan, an employer must comply with three standards:
The expenses must have a business connection;
The expenses must be substantiated within a reasonable period; and
The employee must return any money not spent to the employer, also within a reasonable period.
An accountable plan need not be in writing; however, a written document provides a structure to ensure that the three required elements are addressed. A written expense reimbursement policy should clarify the time period for employees to submit expenses, the process for requesting reimbursement, the process for returning excess reimbursements or allowances, the types of expenses that are reimbursable, and the maximum allowable amount for certain expenses.
If you have a home office for your S-Corp, it may or may not be worth spending the time to get an Accountable Plan in place and start reimbursing yourself through the business. Home office expenses can be a bit tricky to track for S-Corps, as you can only reimburse yourself for the business use percentage of your home and you can’t use the simplified method. But reimbursing yourself for business use of your personal car using the standard mileage rate is fairly simple, as well as reimbursing yourself for a portion of your cell phone and internet bill.
Keep Your Receipts
You want to make sure you can back up all of your deductions, so just a reminder about how important it is to save your receipts just in case the IRS ever comes knocking. Our digital receipt management service (via Dext) can help you track receipts without having to keep paper records. This gives you a complete digital audit trail. The peace of mind will be well worth the hassle.
Final Notes
We have tried to cram a lot of tax information into this blog post. Tax laws change and there are always many nuances and exceptions, so make sure you are checking in with your accountant and tax professional on your specific situation.
Finally, don’t fall into the trap that thinking tax write-offs give you a dollar-for-dollar advantage. The IRS is not reimbursing you for these expenses. The tax savings is only as great as your marginal tax rate. So, yes, you may be able to write off that year-end purchase. But don’t spend $10,000 that you wouldn’t other spend in order to save $2,000 (assuming a 20% effective tax rate). Unless you really needed that $10,000 piece of equipment, that’s $8,000 out the door that you could have otherwise had in your pocket.
How we can help
While Northwest Wine Accounting does not provide tax preparation services, we can generally advise you on what is deductible, what’s not deductible, and when you need to go to your tax professional for guidance. We keep good tabs on all of this as we prepare your books throughout the year so that we can avoid surprises and a big scramble at tax time.
If you are looking for a tax preparer, we would love to recommend you to our preferred referral partners, Jenn Schmerer and Cory Corbridge at Schmerer Corbridge CPAs. We work closely with them to make sure our clients have all of their accounting and tax needs met.
Until next time, happy deducting!
