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18/11/2014

Distinguishing winery repairs from improvements

As the economy continues to recover, winery owners will spend increasing amounts of capital to update their production facilities and attract patrons to their tasting rooms.

The scope of these projects can vary from simple refreshes involving paint, updated floor coverings and new signage to complete renovations that include new exteriors, expanded footprints and facility layout changes.

This trend has raised questions about proper accounting treatments for the incurred costs: what should be expensed and capitalised?

In September 2013 the Internal Revenue Service (IRS) released its final tangible property regulations – the long-awaited guidance relating to the acquisition, improvement and disposition of tangible property.

These regulations affect nearly all taxpayers, including winery owners, and hint at the possibility of closer IRS scrutiny on the horizon – all the more reason to make sure you’re clear on the proper accounting treatment for any costs you’re incurring.

In the November 2014 issue of US Wine Business Monthly, Jeffrey Shilling takes a closer look at how to determine whether your costs qualify as repairs and maintenance or capital improvements.

He touches on three main factors: applying the BAR test (betterments, adaptations and restorations); routine maintenance safe harbour (allowing routine maintenance to be expensed on buildings, building systems and non-building property); and partial asset disposition (an opportunity to offset the cost of capitalising improvements while maintaining compliance with the regulations).

To read the full article, check out the November 2014 issue of US Wine Business Monthly. http://www.winebusiness.com/wbm/


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