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MANAGEMENT By Joseph Finora Jr. 10 Things to Know about Income and Tax armers and wineries have overlapping but not identi- cal tax concerns, and opera- tors need to know the differences. Further, as business promises to remain competitive, tax credits and other incentives become more valuable. In the eyes of the (gulp) Internal Revenue Service (IRS), grapes are defined as an "agricul- tural commodity." Vineyards pro- ducing wine grapes are considered farms and receive a tax treatment different from winemaking, which is classified as being in the manu- facturing business. Each entity AT A GLANCE In tough economic times, it's important to take advantage of all possible tax credits. Speak with your accountant early on when contemplating a major financial decision. Proceed with caution when claiming the "home office" deduction. Vineyards with non-traditional income sources may experience a different tax treatment. 94 VINEYARD & WINERY MANAGEMENT MAR - APR 2012 Deductions The rules vary for wineries vs. vineyards enjoys a different IRS treatment while being engaged in comple- mentary businesses. Confused? Things get a bit stickier for those operations that are both vineyards and wineries. What about opera- tions which buy grapes in addition to growing their own? Or those that buy bulk wine or sell some or all of the grapes they produce to other winemakers? Further, wineries with income from other sources such as agritourism, board- ing/lodging, consulting or property rental should be aware that these are considered "non-farming" activities and are subject to differ- ent tax treatment. Nevertheless, there are several notable exceptions to help mini- mize taxes whether you operate a vineyard, winery or both. THE 'HOME SWEET HOME' DEDUCTION Work at Home? As many vint- ners/growers live on the same property in which their vines and/or facilities are located, a home office deduction seems logical. "You can deduct expenses for the business 1 use of your home if you exclusively and regular- ly use part of it," noted Scott Hunziger, CPA, in Cutchogue, N.Y. A home office would fall into this category. Items include depreciation on your home, real estate taxes paid, mort- gage interest, insurance, telephone line(s), Internet, etc. However, if you choose to claim this deduction, do so with caution; this has traditionally been a "red flag" area for the IRS. missing out on deductions, accord- ing to Greg Scott, head of the wine and vineyard practice of Private Company Services in San Fran- cisco, Calif. "The biggest mistake vineyard operators make," Scott said, "is not realizing that farm appraisers generally do not iden- tify a lot of assets. They leave their value 'buried' in the non-deprecia- ble land cost." Examples of fre- quently overlooked depreciable costs include appellation (depend- ing on the land's location and appraised value), fences, roads, drainage and wells. Conversely, wineries must account for their 2 WWW.VWM-ONLINE.COM Identify Your Assets. Not iden- tifying assets contributes to Photo: Thinkstock