Source: Concannon Miller
Happy New Year to you and yours. Truly excited about what's to come in 2019. With that, I'm hoping your business thrives and here are some additional tips to provide you with some extra cash flow.
Clearly you know, brewing beer requires a significant investment in equipment and supplies, but there are some great tax benefits brewers can receive for some of these purchases.
There are other tax advantages just for manufacturing products – including beer! – in the United States and for selling your products in multiple states. Growing your sales beyond your state border could save you money – a real win-win for both business growth and cash flow!
Here are five MORE great tax tips for brewers:
· Section 179 Depreciation for Equipment Purchases: You may be able to immediately write-off in the year of acquisition up to $500,000 of the cost of equipment purchases. This tax benefit has expired at times in recent years but Congress in December made it permanent, which allows for greater tax planning.
· Bonus Depreciation for Equipment Purchases: This is for new equipment only (Section 179 can be for new or used), but it can add up to big savings. Bonus Depreciation allows you to write-off 50% of the asset cost in the first year, and then you can depreciate the other 50% over seven years. In 2018, the first year write-off amount drops to 40% and then to 30% in 2019, after which the benefit expires if Congress doesn’t again extend it. An extra tip: If you’re a new brewer, you may not want to take the Section 179 or Bonus Depreciation if you anticipate your income increasing over the next seven years. Important Update: The Tax Cuts and Jobs Act greatly enhanced equipment depreciation options.
· R&E Tax Credit: The Research and Experimentation Tax Credit is a very good tax incentive, especially for start-ups. The end result doesn’t even have to produce a new product (though who doesn’t love to try a new beer?!?), but you may get a tax credit for qualified expenses, including wages for qualified services, supplies used in R&E activities and up to 65% of contract services. A study must be conducted for R&E Tax Credits, so there should be a tax/benefit analysis to determine if the tax savings will exceed the cost of the study. Like Section 179 Depreciation, this benefit was recently made permanent, allowing for greater tax planning. If you’re a Pennsylvania-based brewer, the state also offers R&E Tax Credits in addition to the federal benefit. An extra tip: This is great for new companies – you can carry over the R&E Tax Credit if you don’t have income in that year.
· Domestic Production Activities Deduction (DPAD): Made in the U.S.A. is a great mantra, and for brewers, it’s an easy one – where else are you going to brew your beer? Well, did you know you may get a tax deduction just for producing products in the United States? The Domestic Production Activities Deduction allows businesses to take deductions on the production of property you manufacture, produce, grow or extract in whole or in significant part in the United States. The deduction is calculated on 9% of qualified production income, but that amount cannot be more than 50% of W-2 wages. A typical example is on $100,000 of qualified net income, your company could get a $9,000 deduction. Important Update: The Tax Cuts and Jobs Act eliminated DPAD.
· Corporate Net Income Tax Nexus: If you’re a C-Corporation and your state has high corporate net income tax, you could see some significant tax savings by expanding your sales into other states. Your blended tax rate may be lower. Every state's nexus rules are different, but most allocate on three criteria: sales, payroll and fixed assets within the state. The more inroads the greater chance you may have nexus in the state – having sales representatives, taking orders, signing contracts, storing inventory and renting facilities can all help in qualifying for tax reporting in states. A few states – Ohio and Washington, for example – don’t even have corporate income taxes, but base their tax on gross receipts. If you’re an S Corporation, there also is great variation with state rates. Your tax preparer can help you determine if tax filings would be required in different states.
Cheers and Best Wishes in 2019!
Kyle C. Rheiner, CIC
Strickler Insurance Agency Inc
How to winterproof your workplace to avoid insurance claims against your business during the winter months.
Be safe this season! (and always!)
As the end of 2018 is approaching, I wanted to get you thinking about some tax tips that we feel are important for your business. These tips are provided by our friends over at Concannon Miller and we believe you'll get at least one takeway from the information below.
And with that... here's what they have to say: The craft beer industry is booming. And while consumer demand for craft beer is high, that demand alone probably won’t be enough to make or keep your business successful.
You need to take all the opportunities available to you to save on expenses. And luckily for brewers, there are many tax opportunities you can qualify for.
Taking advantage of all available tax benefits won’t only save you on taxes. It also may allow you to decrease the amount of costly loans you have to take out and free cash flow for increased reinvestment opportunities.
If you’re in Pennsylvania, the state recently renewed a tax credit especially for brewers. If you’re not in Pennsylvania, read on – most of the tax tips are relevant to people in any state. A note for startups: While you won’t need tax tips for the early years when you may have net operating losses, you can use those losses for reductions when you do turn a profit.
Now onto our Top 10 Tax Tips for Brewers:
1) Pennsylvania Malt Beverage Tax Credit: The recently renewed state Malt Beverage Tax Credit allows Pennsylvania brewers a credit of up to $200,000 annually on any capital expenditures that expand brewery operations. Brewers can now invest in their facilities and use the credit to offset payment of state excise tax on barrels produced. The credit is effective July 1, 2017 and can be carried forward if it exceeds the current year tax liability.
2) Research and Development Tax Credits: If you’re working on a new beer recipe or product – and which brewer isn’t? – that routine activity could qualify you for the R&D Tax Credit. The credit is intended to promote technological innovation in U.S. companies, which includes improving or developing new products or processes.
The R&D Tax Credit is one of the most lucrative tax benefits available to manufacturers because it’s a dollar-for-dollar reduction in your taxes, unlike many benefits that are only deductions. The credit can be used to pay for wages, supplies and contract services connected to the research. For Pennsylvania brewers, there’s also a state R&D Tax Credit.
3) Domestic Production Activities Deduction: DPAD – for short – applies to manufacturers including breweries. To qualify, a business must pay W-2 wages and be profitable. The deduction amounts to approximately 9% of qualified production activities income. It’s important to separate sales of beer and related merchandise as only activity related to the production of beer can be deducted. For example, if your income from beer production activities in a given year is $100,000, then your DPAD deduction would amount to $9,000. Important Update: The Tax Cuts and Jobs Act eliminated DPAD. Please check out this page for news on Tax Reform changes
4) FICA Tip Credit: Taprooms or brewpubs with tipped employees may qualify for a credit on certain payroll taxes paid on those tips. Essentially, if you have employees that receive wages and tips in excess of the minimum wage, you can recapture a portion of the FICA taxes that were reported and paid. The calculation is somewhat complicated, but if you have tipped employees, there is a good chance you qualify for this credit.
5) Pennsylvania Sales Tax Exemption on Fixed Assets: Equipment, machinery, parts and supplies used directly in the manufacturing process are exempt from state sales tax. That’s a 6% savings right off the top on qualifying purchases. If you’ve paid sales tax on previous brewing equipment and supplies, it might be worth reviewing your records to see if you could recoup that tax.
6) Work Opportunity Tax Credit: This federal tax credit is available to employers who hire and retain individuals from certain targets groups including veterans, food stamp recipients and the long-term unemployed. The credit can vary depending on the specific target group, wages paid to and hours worked by the individuals. Generally, the credit is equal to 25%-40% of first-year wages paid to the employee.
7) Nexus: If you’re a C Corporation and your state has a high corporate net income tax rate, you could see some significant tax savings by expanding your sales into other states – your blended tax rate may actually be lower. Pennsylvania in particular has a very high corporate net income tax rate – the nation’s second highest at 9.99%.
Each state has their own rules as to when you have to file a tax return in their state, but it may not be all that bad to file in other states because it could lower your overall tax liability. Nexus does not create double taxation. There is an allocation – by state – of the sales, payroll, and fixed assets, so you won’t have double taxation, but as noted, some states, such as Pennsylvania, tax at a very high rate.
8) Bonus Depreciation: Are you planning to buy any new equipment soon? Then the next two tax tips are especially for you.
Bonus Depreciation allows 50% of the cost of new fixed assets purchased during the years 2016 to 2017 to be written off in the first year that they are placed in service. This is reduced to 40% in 2018 and 30% in 2019. Planning is key for Bonus Depreciation because you may want to purchase equipment, furniture or fixtures in 2016 or 2017 in order to take advantage of the 50% bonus in those years.
9) Section 179 Depreciation: Section 179 is a depreciation method that allows you to accelerate write-offs by immediately deducting the full price of business equipment purchased in a given year. The deduction is available for new and used equipment purchases and is subject to both federal and state limitations. The deduction is particularly effective in years when you turn a profit as the deduction is limited to your business income annually.
For example, if you purchase a fermenter for $25,000 it would typically be depreciated over a 5-year period. Using Section 179 Depreciation, you can immediately expense the entire $25,000 on both your federal and state tax returns in the current year. Important Update: The Tax Cuts and Jobs Act greatly enhanced equipment depreciation options. Check out this article for the new limits
10) Cost Segregation Study: If you own the real estate where your brewery or brew pub is located, this is a tip you should strongly consider. Normally, commercial buildings are depreciated over a 39‐year period; however, components of the building may be able to be depreciated over a much shorter period of time. For example, the building’s electrical system that runs your business equipment can be depreciated over a 7‐year period, instead of over 39 years.
It is common practice to have a cost segregation study performed by qualified professionals to break out the building into much shorter life elements, or personal property, which would be depreciated over 5 or 7 years. An analysis would have to be done to determine whether the expense of a cost segregation study would be less than the tax savings, but in many cases, the cost pays for itself with the tax savings generated from the increased depreciation.
Inclusions in payroll for Workers Compensation insurance:
Exclusions in payroll for Workers Compensation insurance:
I hope this helps you have a good understanding of what to include and what not to include in reporting payroll to the WC insurance company. Since payroll is used (directly and indirectly) as a factor in determining everything from premium, the Experience Modification Rate (EMR), deductible levels and aggregates, Min/Max on retrospective plans, and tracking ratios like frequency rate, it’s critical that payroll is understood and submitted correctly.
What is a Liquor Tax Bond?
Alcohol and liquor tax bonds guarantee payment of taxes or fees imposed by state or local law for the sale, manufacture or warehousing of liquor and other alcoholic beverages. The type of surety bond is a financial guarantee that protects the obligee, which in this case is the government entity that requires the bond, from falsified records of sale, or an inability to pay requisite taxes on previous sales.
These bonds are also referred to as Alcohol Ordinance Tax Bonds, Beverage Tax Bond, Brewer’s Bond, Distilled Spirits License Bond, Liquor License Bond, Malt Beverage License Bond, and Wine Bond
How Do Surety Bonds Work?
Surety bonds are required to protect the public. They guarantee obligations will be fulfilled, whether it’s a contract bond guaranteeing a public construction project will be completed, or a license bond guaranteeing a beverage manufacturer will abide by the laws. These specific examples are a small overview of the hundreds of surety bonds out there, but they all have one thing in common; they protect the public, not you.
Your Surety Bond is a Form of Credit
You might wonder “how does paying for a surety bond guarantee anything or protect the public?”, and that’s a great question! When a surety company provides you with a surety bond, which you learned is a guarantee; they are vouching that you will follow the bond terms. If the bond guarantee is not fulfilled and damages are caused, a claim can be filed.
Next, let’s make a distinction between surety bonds and insurance, each of which has distinct and differing purposes.
Surety Bonds vs Insurance
A surety bond is a contract involving three parties: the person or entity performing the service (principal), the person or entity for whom the service is performed (obligee) and the entity that guarantees the principal will perform as agreed (surety). In the event of a loss or failure to perform, the surety bond pays the obligee, not the principal.
Surety bonds work more like credit than insurance. Insurance is an agreement between two parties where the entity paying the premium receives the benefit in the event of a loss. See the difference?
An exclusion is a policy provision that eliminates coverage for some type of risk. Exclusions narrow the scope of coverage provided by the insuring agreement. In many insurance policies, the insuring agreement is very broad. Insurers utilize exclusions to carve away coverage for risks they are unwilling to insure.
Reasons to Exclude RisksExclusions serve various purposes. Most apply to risks that fall into one of the following categories.
Policy forms are not cast in stone. Most are revised periodically. ISO updates it's commercial auto, general liability and commercial property forms every few years. Insurers often follow, incorporating the changes ISO has made into their proprietary forms. A common outcome of the form revision process is the addition or modification of policy exclusions.
Many of the changes made to policy exclusions are a response to recent court decisions. ISO and insurers draft policy forms with the intention of limiting coverage to certain risks. A court may determine that the policy covers a risk that the drafter assumed was excluded. ISO or the insurer may then add or modify an exclusion to remove coverage for that risk.
An obvious place to look for policy exclusions is in the section entitled exclusions. Some policies contain both exclusions and limitations. A limitation is a partial exclusion. It narrows the scope of coverage for an insured risk. For instance, property policies often restrict coverage for valuable items like furs and jewelry to a specified (low) limit.
A policy that provides more than one type of coverage may contain multiple lists of exclusions. A separate list applies to each type of coverage. For example, a typical commercial auto policy contains two sets of exclusions, one under Liability Coverage and the other under Physical Damage Coverage.
Some policies that provide multiple coverages include only one set of exclusions. Each exclusion applies to all coverages. Other policies contain separate exclusions for each type of coverage and common exclusions that apply to all coverages.
A policy may contain exclusions that are not located in the exclusions section. Here are some places where they often appear.
One of the most common places to find policy exclusions is the definitions section. Definitions attach specific meanings to words so that they can narrow the scope of coverage. For example, many policies define a coverage territory, which limits coverage to events that take place in specified countries. This definition serves as an exclusion since events that occur outside the specified countries are not covered. Policies that do not specify a coverage territory generally cover events that occur anywhere in the world.
Exclusions can also be found in the policy section. For example, the ISO commercial auto policy contains a provision that limits coverage to accidents that occur in the coverage territory. This provision appears in the general conditions section, not the definitions.
Many insurers add exclusions to policies by attaching endorsements to preprinted forms. An endorsement may add a new exclusion or modify an existing one.
The insuring agreement is the backbone of a policy. It typically contains broad statements describing the coverage provided. Even the insuring agreement can contain exclusions. For instance, the insuring agreement in the standard general liability policy specifically excludes bodily injury or property damage that was known to certain insured parties before the policy began.
Terrorism insurance is offered separately or as a special addition—called an “endorsement” or “rider”—to your standard commercial property insurance policy. A standard business policy alone will not cover losses caused by terrorism.
Terrorism coverage is a public/private risk-sharing partnership that allows the federal government and the insurance industry to share losses in the event of a major terrorist attack. The Terrorism Risk Insurance Act (TRIA), which was enacted by Congress in November 2002, ensures that adequate resources are available for businesses to recover and rebuild if they are the victims of a terrorist attack. Under TRIA all property/casualty insurers in the U.S. are required to make terrorism coverage available.
Frequently asked questions about terrorism insuranceQ. What is covered by terrorism insurance?
A. A commercial terrorism policy covers damaged or destroyed property—including buildings, equipment, furnishings and inventory. It may also cover losses associated with the interruption of your business. Terrorism insurance may also cover liability claims against your business associated with a terrorist attack.
Q. What’s excluded in a commercial terrorism insurance policy?
A. Depending on your state, a terrorism insurance policy may exclude coverage for fire following. Nuclear, biological, chemical and radiological (NBCR) attacks are also excluded, except in the life, health and workers compensation lines of insurance.
Cyber risks are also an emerging terrorist threat. It is possible that property damage or injuries to employees could be caused by a cyber-attack—for instance an attack that causes equipment to malfunction. On the other hand, most computer attacks are not violent and do not cause physical damage. In general, terrorism insurance is unlikely to cover a cyber-attack, and a small business concerned about this risk should consider purchasing separate cyber liability insurance.
Q. How does terrorism insurance work?
A. Losses are only covered by a terrorism insurance policy if the U.S. Department of the Treasury officially certifies an event as an act of terrorism. This requires that the act be violent and be driven by the desire of an individual or individuals to coerce U.S. civilians or government. No act shall be certified by the Secretary as an act of terrorism if property and casualty losses, in the aggregate, do not exceed $5 million. The act must also cause at least $100 million in damage to be considered a terrorist attack.
The definition of a certified act of terrorism has been expanded to cover both domestic and foreign acts of terrorism.
Factors to consider when deciding whether to buy terrorism insuranceAbout 60 percent of U.S. businesses have terrorism insurance. A few factors to consider when deciding whether or not to insure yourself against terrorism include:
A product recall can have long-lasting and costly consequences for your business – affecting your reputation, productivity, employee morale and bottom line. Thirty years ago if you had a little problem, the chances of people knowing was slim. Now, with Social Media and how quickly news travels, it's bound to be noticed extremely fast. There are several steps you can take to help prevent a product recall. In addition, having the right insurance coverage in place can help minimize the impact.
Familiarize yourself with product safety standards and regulations within your industry – and remember they may change with evolving trends
· Know the product safety standards and regulations within your industry
· Establish a compliance team to ensure you meet standards and laws
· Train employees to be sure they know product safety is a top priority
Scrutinize and verify all partners and processes within your supply chain
· Fully assess manufacturing partners, particularly foreign companies, before doing business with them, including checking claims and litigation history, requesting references, testing products manufactured for others, and confirming company's financials and insurance coverage
· Inspect all third-party parts, materials or ingredients before using them in your products
· Require that suppliers meet quality standards, pass quality audits by independent third parties, and sign contracts that hold them responsible for errors
Establish and conduct robust quality controls
· Perform quality checks at multiple points of the manufacturing process
· Have the quality control program audited by an independent third party
· Create an open culture so employees feel comfortable raising safety concerns
· Have a plan in place should a complaint or claim be filed against your company
· Retain records that allow traceability throughout the supply chain
· Perform mock recalls to test recall plans
· Give us a ring to be sure you have the right coverage in place to help you recover from a product recall
Our carriers offer tailored product recall coverage for manufacturers, food industries, craft brewers, technology companies, retailers and more. Having the right insurance coverage in place can help minimize the impact of a recall by covering the costs to investigate complaints, communicate the recall, collect, repair and dispose of the products, lost profit, legal fees and penalties.
Let's discuss Workers Compensation Insurance. As your business is growing and increasing sales, you're also adding employees, interns and having the occaisional volunteer in your facility. I've gotten a lot of questions about whether or not Interns (paid or unpaid) are covered by your workers compensation policy.
As always with insurance, unfortunately, the answer is: "It Depends."
It depends on what state you're in and the laws implemented, it depends on their job duties, receiving college credits, considered "casual" workers, and whether or not they're performing services for "valuable consideration" aka payment.
Determining who's eligible for benefits under workers compensation is something you really want to discuss with an attorney. Here's an article for PA and NJ... and if you're in NY or other states, it's an easy google -- "are interns covered under workers compensation in (insert your state)" etc etc
Two Solid Articles here. And, as always, shoot us a call/text/email with anything you need.
It is incredibly hard to defend your system against employees clicking on phishing links that they shouldn't be clicking on. Contact us today to get a quality cyber policy for your clients.
How Does Telephone Hacking Occur?
Because VoIP sends calls directly through the same exact path that your network uses for internet and other traffic, your VoIP connections open your network to attack and exploitation. Hackers can sign up to lease premium-rate phone numbers (often used for sexual-chat or psychic lines), from web-based services that charge dialers over $1 a minute and give the lessee a cut. This type of attack is referred to as "Toll Fraud" but other common phone attacks include DDoS and Eavesdropping.
Claims Example: Architecture Firm
An Architecture Firm in Norcross, GA ran up a $166,000 phone bill in a single weekend. Hackers routed calls from the firm to premium-rate telephone numbers in Gambia, Somalia and the Maldives. High speed computers allowed the hackers to make hundreds of calls simultaneously. The local police said there had been no progress in finding the hackers. The firm had no idea that this was a potential risk factor could seriously threaten the health of the business.
How Can I Make Sure My Client is Covered?
First ensure that your you have a cyber policy in place that includes first party crime coverage. Because this is unique type of hacking attack, you want to make sure that it is specifically listed in the policy wording. Many times it is referenced as "telephone hacking." If you are looking to ensure that you have quality coverage in place in the event of a telephone hacking attack, please contact Kyle Rheiner at 610-217-8685
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