Aspiration & Struggle

Pop Open a Cold One: U.S. Tax Breaks for Craft Brewers

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The popularity of craft beer is on the rise nationwide. A 19.4 percent rise in craft breweries from 2013 to 2014 brought the total number of craft brewers to 3,418 at the end of 2014. These numbers won’t shock most beer lovers: take a walk down the liquor aisle at any grocery store and you’ll most likely see craft beer right next to the mainstream favorites.

But what may surprise many craft beer lovers is the variety of tax implications of starting a brewery. It can be very complicated to legally open a brewery; but for these newly fermenting entrepreneurs, there are a few benefits to keep in mind — beyond the beer.

Tax Breaks that Help Breweries Get Started

Whether your goal is to start a small microbrewery, or a full packaging and production operation, there are several tax breaks of which to be aware.

At a federal tax level, most breweries qualify for at least two major tax breaks. First is the Domestic Production Activities Deduction, which gives you a break because you are manufacturing on U.S. soil and paying American workers their fair wages. It can total up to 9 percent of the income from your beer, but not to exceed 50 percent of the wages you paid your brewery staff. This deduction helps small businesses while increasing employment opportunities.

Another important tax break for craft brewers is the Research and Development (R&D) Credit. This credit applies to any R&D you perform for your craft brewery. This is key for start-up craft breweries as they test and refine their beer recipes prior to production, or test out new methods of processes like waste management. This credit will help offset some of those hefty start-up costs.

The Cost of Going Global

America isn’t the only player in the craft brewery game. The Brewers of Europe, for instance, boast over 5,000 breweries across Europe, employing a total of 2 million individuals. In the U.S., breweries pay an excise tax ($7 per barrel) on the first 60,000 barrels of beer and $18 per barrel thereafter, though 2015 marked the beginning of new bipartisan legislation called the Small BREW Act that would effectively lower the excise tax to $3.50 per barrel for the first 60,000 barrels and $16 per barrel thereafter. This would promote job creation, benefit small breweries by keeping them competitive, and keep an additional $64 million in the U.S.

For those small brewers with big dreams of going global, Europe also extends tax breaks to small U.S. breweries. According to Outside Magazine, American brewers have been opening extensions of their breweries in the U.K. and Italy for the past decade. Additionally, Germany’s first American brewer, Stone Brewing Company, will be setting up shop in the next year. On the flip side, the U.S. doesn’t offer the same benefits to European brewers, causing commotion in the brewing community though giving small U.S. craft brewers a slight advantage.

April 7 honors National Beer Day, and what better way is there to celebrate (besides popping open a cold one) other than to reflect on the growing industry, job creation, and creativity that accompanies this craft? Craft brewers in the U.S. rejoice in variety of tax breaks. So if you’re considering opening your own brewery, one of the pros to add to your list is the tax benefits it will provide.

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I'm a personal finance expert that focuses on helping millennials get out of student loan debt and start investing for their future. I also help parents make smart choices about college financing options and navigating the complex world of paying for school. I started The College Investor in 2009 as a forum to discuss the myriad of financial issues facing young adults. I majored in Political Science at UC San Diego, and received my MBA from the Rady School of Management at UC San Diego. To learn more about me, go to TheCollegeInvestor.com.