As you may know, I prefer to be writing and talking about brewery growth strategies. What you may or may not know that I have spent 15 years as a tax CPA.
Not bragging; but bragging…..We know a lot about Federal and State income tax AND we have prepared just over 50 brewery tax returns over the past 4 years.
So every Tuesday between now and December 1, I am going to share some nuggs of gold with you regarding taxes and tax planning.
I’m calling it Tax Tip Tuesday.
I encourage you to share this info with your CPA or tax preparer. Some of my positions will run right in line with “them” while others theories of mine have an interesting twist and have brought on some funny encounters with the “them.”
For example, ene time I got called a young, immature, a-hole, because I pointed out that a DPAD calculation was not being maximized. He called me an A-Hole!…..lmfao
It’s cool, I’ve been called worse.
They say tomato, I say dollar sign.
Either way, have them call me if they have a question.
Let’s get started with Tax Tip #1:
Every brewery in the land should be an accrual basis taxpayer.
For a awesome read about cash basis v. accrual basis accounting, I will punt to my buddy Kary Shumway and this article.
While all of our brewery customers are on accrual basis accounting and tax, we do use cash basis reporting from time to time.
For example, if an investor is hard on the dollar, and cares more about what was deposited rather than sales for the month, we can sent them a cash basis P&L. This will show them what deposits came in during the month.
The choice to be Cash or Accrual is a voluntary election the first time you file your business return. Most of “them” will choose cash, because they do that for most businesses they work with.
There comes a time where a business can be forced to convert from cash basis to an accrual basis taxpayer. Most breweries can reach this milestone very quickly because it deals with surpassing a sales milestone and holding inventory.
Remaining a cash basis taxpayer until you are forced to switch is not a good idea. Reason, there is a tax bill associated with this. It involves a complicated calculation to convert the books from cash to accrual and it always results in a tax burden on the brewery owner. If you catch this early on, the tax is minimized or in better cases, zero.
- Confirm you are accrual basis by looking at the top of your tax return for this box.
- If you are an accrual basis taxpayer, great, stop here.
- If you are cash basis taxpayer, contact your CPA or tax preparer and ask “them” why.
- Share this post with as many brewery owners you may know, because sharing is caring.