Vineyard and Winery Services
Wines are growing in popularity. The Grand Valley has proved to be a natural wine-producing area with the ideal soil and climate. There are tax issues of specific importance to the wine industry. The Internal Revenue Service released a report which was, in effect, a tax compliance checklist for use by IRS personnel in selecting winery and vineyard tax returns to audit. The suggestion is that winery and vineyard operations should exercise particular care in ensuring compliance with federal income tax accounting rules.
Be particularly aware of tax accounting rules such as:
- Costs and expenses must be taken into account under the proper method of accounting; for wineries, this method usually is the uniform capitalization method (UNICAP).
- Income from a vineyard’s sale of grapes to a related winery must not be improperly deferred; ordinarily, if deferral of such income is allowed, it is limited to the year following the year of sale.
- Grape growing costs generally must be capitalized and, thus, cannot be taken into account for tax purposes prior to the time income from the sale of the grapes is subject to taxation.
- Among others, the following vineyard operations must be capitalized:
- Direct cost of vines
- Labor and indirect costs of planting vines
- T-budding expenses
- Fumigation costs
- Vine replacement costs (engineering and design of new vineyard, preparation of land for replanting, planting and installation, purchase of new vines, purchase of irrigation equipment and trellis system.)
- Costs associated with designing or developing labels and packages must be capitalized and amortized over a 15-year period.
- Proper depreciation periods must be used in determining depreciation deductions.
- Deductions taken with respect to personal residences located on winery or vineyard property must be authorized under the Internal Revenue Code.
