As the owner and operator of a successful winery or distillery, you’ve probably resigned yourself to the fact that complying with a multitude of federal and state regulations is just part of doing business.
With complex rules to comply with and tedious–not to mention confusing–reporting requirements to keep track of, it’s no wonder that inventory reporting is among the most frequent compliance issues facing wineries and distilleries, according to the Alcohol and Tobacco Tax and Trade Bureau (TBB). Plus, the accounting and tax rules concerning inventory costing are important to consider to better plan production, determine selling prices, and accurate tax planning.
California CPAs for Wineries, Breweries, and Distilleries
At Cook CPA Group in Roseville, we believe that the best way to avoid compliance issues is to make sure you have a good inventory management system in place.
If you’re just starting out in the distilling business or operate a small winery, you might be able to get away with using Excel spreadsheets for a while, but eventually, you’ll need more sophisticated inventory software. And, if you’re still using paper records, welcome to the digital age! Many of the new inventory software products are cloud-based so can be rather affordable for even smaller wineries. The costs can be tracked from growing the grapes, crushing raised and purchased grapes as well as winemaking processes such as blending and bottling.
As the accounting firm of choice for many of Sacramento’s wineries and distilleries, Cook CPA Group is here to help you every step of the way. As a CPA for wineries that also provides CPA services for distilleries, we know from experience that inventory management software will make your life easier in the long run—and it might just lead to increased profits.
We also understand that choosing accounting software is not an easy task.
If you haven’t started using inventory software yet, we can help you choose which one is best for your winery or distillery. We’ll help you set it up and show you how to run reports, and once the data is entered (and we admit this is time-consuming), all that’s required of you is daily record keeping. It is important to have all the players involved in implementing the inventory software process from the accounts payable person to the winemaker as both the accounting and production personnel are integral to a successful implementation. Additionally, many inventory systems can integrate into your general ledger products such as QuickBooks or Xero.
Proper Inventory Can Increase Profits and Reduce Surprises
If you already have inventory software in place and are working with an accounting firm like Cook CPA Group that provides CPA services for distilleries and wineries, job well done!
But if you’re not working with an accounting firm that specializes in wineries and distilleries, you could be missing out on tax deductions that increase your bottom line.
Why? Because general accounting firms simply don’t understand your business—and they might not know about special deductions that wineries and distilleries are eligible for.
The accounting for inventory is subject to specific tax rules commonly referred to as 263A or unicap. The tax code provides guidance so there is uniform capitalization of productions costs and even indirect production costs such as interest expense and administrative expenses are allocated to inventory instead as a direct tax-deductible expense. The production costs are aggregated as inventory. The inventory costs are relieved to cost of goods sold once the related item is sold. So the net income can change significantly once the general ledger is reviewed and the costing processes are complete. The winery owners can be caught off guard as their profits are higher than expected due to more costs treated as inventoriable cost. Or the production processes are higher than expected and the wines are not being sold at a high enough price point to recover the cost of making the wine. Plus, pre-productive expenses (such as planting new vines and related costs) also must be capitalized for tax reporting. Utilizing inventory software will help you understand the financial picture of the winemaking process.
Non-compliance issues with TBB include failure to keep adequate records of physical inventories and inventory summaries do not provide all of the information required such as the kind of spirits in the tank, identification of the container(s), and the date of the inventory.
With inventory software, you’ll be able to produce standard reports that meet TBB requirements as well as custom reports related to activities involved in operating a winery or distillery such as bulk inventory management, bottling reports, barrel and tank groups, and fermentation records.
Our Roseville CPAs Can Help You Take Your Winery or Distillery Business to the Next Level
Whether you love it or hate it, technology is here to stay. Whether you’ve recently decided it’s time to enter the digital age or need to update an out-of-date inventory management system, it’s time to start making today’s technology work for you.
Call Cook CPA Group at 916-724-1665 if you’re ready to take your winery or distillery to the next level using integrated inventory management software.