News & Events

Under the 2008 Stimulus Act, many small and moderate sized businesses with moderate capital equipment needs may be able to claim a full deduction for the cost of business machinery and equipment purchased in 2008.

The greatest tax savings is achieved by combining both the bonus depreciation and the Section 179 provisions of the bill.

The bonus depreciation provision applies to property acquired after December 31, 2007 and before Jan. 1, 2009. Under this provision, 50% of the cost of new qualified property purchases can be expensed as bonus depreciation in the 2008 tax year. "Qualified property" includes most types of tangible property other than buildings. The adjusted basis of the property is reduced by the bonus depreciation deduction before computing the amount allowable as depreciation or Section 179 deduction.

The Section 179 provision of the bill provides for increased deductions for property placed in service during calendar year 2008 and fiscal years beginning in 2008. This provision increases the maximum Section 179 deduction to $250,000 and increases the overall investment limit to $800,000. Therefore, using the dollar for dollar phase-out rules the $250,000 Section 179 deduction is completely phased out only if current year purchases total more than $1,050,000.

Since the incentives are only available for the 2008 tax year (unless extended), it is important to consider and plan for these current year purchases as soon as possible.

Please feel free to contact us if you have questions.

If your winery uses forklifts, or other equipment that runs on propane, you may qualify for a new tax credit equal to 50 cents per gallon of propane you purchase. To qualify, your company must be a registered alternative fuel user with the IRS. The credit is refundable, and can be claimed on you annual income tax return. Form 637, Application for Registration, and the related instructions are available below.

If you would like more information about this credit or would like help in registering with the IRS, call 707.963.4466.

Click here for Form 637

Being prepared for the next 12 months and beyond requires planning. Planning starts with asking the right questions. Here are some questions to consider.

TAX BREAKS FOR VINEYARD FROST DAMAGE

If your vineyard suffered crop losses or permanent damage from the extreme frosts of spring 2008, you could be eligible for a variety of tax benefits.

 Deferred Reporting of Insurance Proceeds

An election is available to defer reporting of crop insurance proceeds until such time as your vineyard would have reported the normal sale of the grapes.  To take advantage of this deferral period, Internal Revenue Code Section 4519(d) and Reg. 1-451-6 provide for an election to be made on the taxpayer's return for the year in which the proceeds were received. 

Wineries which use estate grapes to produce their own wine can qualify for deferred reporting under Internal Revenue Code Section 1033.  When inventory is involuntarily converted to cash (in this case through insurance proceeds), businesses are granted a two-year period in which they can use this cash to obtain replacement inventory.  After this period, the proceeds are still not recognized until the "replacement" inventory is eventually sold as bottled wine.  This can extend the reporting period for an additional 1-3 years or more, depending on the aging period of the wine.

Immediate Deduction for Vineyard Repairs

Costs incurred to replant small quantities of vines permanently damaged can be deducted immediately as repairs expense.  Provided these costs are minor in relation to the overall capital cost of vineyard as a whole, such costs are not required to be capitalized as a new asset and depreciated over their estimated useful lives.

Liberalized Capitalization Rules for Vineyard Replacement

For situations in which an entire vineyard block is damaged and must be replanted, the original cost of the vineyard (less depreciation taken in previous tax years) can be written off immediately in the year of the loss.  In addition, the replanting development project can be exempt from the normal capitalization rules under Section 263A.  Direct materials and labor costs would still need be capitalized, but normal farming costs during the pre-productive period may be expensed as incurred.

IRS Circular 230 Disclosure : To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalty or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Read Craig's thoughts about reducing costs here.