tasting pours as charity donation

Just curious what everyone thinks of deducting tasting pours at a charity wine festival. We were recently at a wine festival sponsored by a civic organization with around 10K people attending and poured 6 cases of wine. I had never thought of writing it off as a federal tax deduction before but we really didn’t sell much and it would really help the bottom line for the winery.

Milt

Is there a difference of the deduction that goes your to your bottom line between a charitable deduction and a business deduction?

I don’t know that there is a difference between charitable and business. I would consider this a business deduction. I would have to check with my accountant if this is not just a crazy idea. Of course, I’m sure my accountant would go along with whatever I wanted to do; they always do since its my neck on the line and not theirs.

?Cogs?

Milt

Good question Phillip. I would assume that I could consider the goods donated (i.e., the tasting bottles poured) as being of equal value to the bottles we sold at the festival.

Milt

Don’t think you can write it off as a charitable donation because you do not have a receipt from the charity indicating it as such.

Well I thought it was worth a shot. I guess I could check with the civil organization for a possible receipt as I don’t see where it would affect them. They made like $150K and we made maybe $2K. They seemed like they appreciated our attendance.


Milt

A CPA but not a tax specialist.

It’s not COGS. COGS means you SOLD it. :slight_smile:
if you poured 6 cases, and sold 2 cases for example. those 2 cases would be Cost of goods sold (COGS).

The 6 cases you did pour you can deduct as marketing/promotions/PR expense.
because that’s the whole point you were there right? to market your winery.

I’m not sure why you would want to deduct it as Charitible giving? it’s easy/no red tape about receipts etc just to put it to marketing I think…

Thanks markye. That makes a lot more sense than the charitable gift idea. Yeah, the goal was to sell wine. Seems like we poured almost as much as we sold but that business. Guess we will have to get some 1/2 oz pourers for our bottles.
We have only been in the wine sales business for about a year so I guess I was thinking about the charitable gift thing from previous experiences from personal tax returns. I’m pretty sure my accountant will agree with you about putting it under marketing or even possibly something like advertising.

Milt

All you can write off is what it cost you to make the wine. Basically no different than if you dropped the cases on the floor and broke them. Just becomes part of that year’s cost of goods sold. And you want it to be that, and not any other category, otherwise you’d have to carry it forward as inventory until you sold the last of the wine from that vintage (I think). Doesn’t matter if it’s wine for a charity event, wine as a charity auction lot, or wine you poured for a customer at the winery. All the same. Even if an auction lot generates thousands of dollars, you only write off the amount it cost to produce.

What really sucks is that people who buy auction lots can only write off the amount above fair market value. So if it costs you $20 to make a bottle which you sell for $40 retail, if that bottle is sold at auction for $50, the winning bidder can write off $10, and you only get to write off $20. The margain ($20) goes unclaimed on anyone’s taxes. Doesn’t quite seem fair to me…

So Brian. I have a rough idea of my costs to make the wine and produce it in a bottle but is there a recognized way that Uncle Sam uses to determine that cost?

Milt

I’m probably not the best person to ask. I think the way our account does it is take the costs to create our inventory, and use the % of that inventory sold during a given year to determine deductable costs. Trying to get to an individual bottle cost and track each as they are sold or given away is difficult since we also have to include “soft” costs like utilities in our final year end inventory cost of goods, so keeping it at a higher level makes more sense for us. Accural accounting really blows.

Maybe I am looking at this as a dorky CPA and not as a artisanal winemaker, but if you were there to sell wine “we made about 2K”, then I don’t care what type of event this was, you were marketing/advertising your business to make sales. Book it to your adv/mkting/bus promo account. Another problem with booking things to charitable contributions would be that you could possibly lose the deduction depending on what type of entity your winery is. If it is a passthrough entity and you don’t itemize personally, you just lost the deduction…hopefully in this case your accountant would reclass this into your adv/mkting account anyway.

are tax laws uniform across all States? If they’re not, you shouldn’t assume any advice you’re getting here is applicable.

This does make for some interesting conversation, but, in the end, this is a conversation you must have with your accountant.

[quote=“Brian G r a f s t r o m”]
are tax laws uniform across all States? If they’re not, you shouldn’t assume any advice you’re getting here is applicable.

This does make for some interesting conversation, but, in the end, this is a conversation you must have with your accountant.


Federal tax laws are.

VERY true!

I’m sure that will be fixed soon, since fairness and sensibility are the primary principles of the U.S. tax law [tease.gif]

Although in this case, I think it makes sense. The charity received $50. But that $50 didn’t just come in the form of a check (which would be fully deductible). Instead, the donor received something of value ($20 margin = economic value), and the IRS wants its cut of that.

I don’t understand the whole idea of deducting anything here. Assuming that you are a cash basis taxpayer*, you recognize income when you sell the bottle and you don’t recognize income when you give the bottle away, whether for charity or some other marketing purposes. You have already deducted the cost of making the wine you gave away. Once you deducted the cost of making it, the wine had a zero basis, so there is no basis to deduct it again.

You can deduct the cost of driving over to the event. But other than that, what is the basis for deducting anything?

  • If you are an accrual taxpayer, disregard everything above. neener

But wouldn’t it always be a good idea for a winery to be accrual basis as we carry significant inventory? We’re accrual so our cost for making the wine isn’t deducted until the bottle leaves inventory (sold/donated/sampled/drank/dropped).