CPA: winery question | TigerDroppings.com

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Iona Fan Man
Iona Fan
Member since Jan 2006
27462 posts

CPA: winery question


under GAAP can wine sales be capital gains?

you craft the product, hold it for a year or more, then you sell it to distributors.

Guy I knows family owns a winery and he said that they are taxed the same as income.(but he's not really actively involved in the business)

I told him that they should open a holding company.
1. create product
2. sell to holding company at cost
3. when holding company sells to distributors, the difference in price is capital gains

I am not a CPA and only took 2 accounting courses....just looking for an easy explanation as to why this can't be done if it can't be done.




This post was edited on 3/21 at 4:56 pm



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Poodlebrain
LSU Fan
Way Right of Rex
Member since Jan 2004
15313 posts

re: CPA: winery question


No, if you are a winery you manufacture wine and sell your inventory as ordinary income from your trade or business. As for your idea to become an investor in wine so you can buy and sell for capital gains, I doubt the IRS would go for it. First, they would treat the wine as personal assets instead of investment assets. As such you would have to pay taxes on all capital gains you realize from buying and selling wine, but you wouldn't be able to deduct any losses since losses from the sale or exchange of personal assets are not deductible. So investing in wine for as a money making venture has a higher tax cost than investing in real estate.

In your scheme how is the intermediate entity not a wholesaler? Wholesalers do not get to sell for capital gains.






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Iona Fan Man
Iona Fan
Member since Jan 2006
27462 posts

re: CPA: winery question


so "ordinary income"...makes sense

the holding company, holding for reselling....the wine wouldn't be looked at as investment? stamps, baseball cards, day old wine?






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tigeralum06
LSU Fan
Member since Oct 2007
1363 posts

re: CPA: winery question


And capital gains is a tax treatment so gaap accounting is irrelevant in this scenario





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Iona Fan Man
Iona Fan
Member since Jan 2006
27462 posts

re: CPA: winery question


quote:

And capital gains is a tax treatment so gaap accounting is irrelevant in this scenario


pardon, I just said GAAP with the assumption that it covered all aspects of legal taxation. Chalk it up to my naivety.

The secondary holding company wouldn't be legit then?



This post was edited on 3/21 at 6:18 pm


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Beerinthepocket
LSU Fan
Dallas
Member since May 2011
579 posts

re: CPA: winery question


No it wouldn't, there's no legimate business purpose for the holding company you describe.

Btw GAAP accounting is not the same as tax accounting. Each is a different basis of accounting.






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Iona Fan Man
Iona Fan
Member since Jan 2006
27462 posts

re: CPA: winery question


quote:

there's no legimate business purpose for the holding company you describe.


central holding company for multiple vineyards. we give you present value of future wine

ie a bottle of 1 day old is $5.67, a bottle of the same label that's 5 years old goes for $10.

If I buy at $5.67 and sell at $10, 5 years later I get a 12% annual return.

Is that return operating income or capital gains of goods sold?







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