Issue link: http://read.dmtmag.com/i/620640
w w w. v w m m e d i a . c o m J a n - F e b 2 016 | V I N E YA R D & W I N E RY M A N A G E M E N T 1 4 7 On the other hand, LLCs can provide more flexibility to allocate losses to those members who funded the business, allowing them to use those allocated losses to offset their other taxable income. This can be a great planning tool at the inception of a vineyard or win- ery business, since it may generate only losses in its first five years as vineyards come into production and wines are aged. As an example, consider a win- ery owned by two partners, and say Partner A has contributed 100% of the capital. If the winery is an LLC and the operating agreement is structured accordingly, all of its losses can be allocated to Partner A. Alternatively, if the winery is an S corporation, its losses are allo- cated according to the number of shares owned by each sharehold- er, regardless of who funded the business. So if the two are equal owners, Shareholder B will be allo- cated 50% of the losses, and those losses will be deductible only to the extent the shareholder has basis. Above all, consider your end goals: Do you plan to transition your wine business to a second or third generation? Or do you plan to grow ACCOUNTING METHODS At the most fundamental level of tax planning, your overall account- ing method – cash or accrual – is important. Vineyards, as farming opera- tions, are generally permitted to use the cash method regardless of it and sell it in a few years? Estate planning may be simpler with an LLC, but another entity type may be better suited to an outside sale or the transfer of an existing license. Spend time with your attorney and CPA well in advance of formation to determine which structure works best for your long-range plans and tax exposure. + There are many tax- reducing opportunities for wine businesses at both the state and federal levels. + Entity structuring is critical, whether you're starting a wine business from scratch or purchasing an existing one. + Unlike with an LLC, the flow- through income from an S corporation to an active shareholder isn't considered self-employment income. + The cash and accrual meth- ods each have their ben- efits, but cash is generally favored. AT A GLANCE