The recently enacted ‘One, Big, Beautiful Bill’ (OBBB) introduces several significant tax provisions for breweries. The Tax Cuts and Jobs Act (TCJA) of 2017 introduced a 100% bonus depreciation deduction for qualified capital expenditures, which began phasing out in 2023. However, the OBBB makes this 100% deduction permanent for expenditures placed in service after January 19, 2025. For example, a brewery purchasing a new canning line for $100,000 in February 2025 can now deduct the full amount immediately. It’s crucial to note that purchases placed in service before January 19, 2025, remain subject to the reduced deduction of 40%.
The OBBB also allows taxpayers to elect 100% first-year depreciation for Qualified Production Property (QPP), enabling full cost deduction in the year of acquisition. QPP is nonresidential real property used in qualified production activities. To qualify, the property must be newly used by the taxpayer, construction must begin after January 19, 2025, and be completed before January 1, 2029, with a placed-in-service date before January 1, 2031. IRS guidance is still pending on which manufacturing activities qualify, but newly built breweries may qualify for a full or partial accelerated depreciation deduction on the building costs.
One of the most crucial changes in the TCJA was the required capitalization of research and development costs, which formerly were eligible as ordinary business deductions. Section 174 of the Internal Revenue Code, requiring breweries to capitalize and amortize R&D expenses over five years starting in 2022, effectively added “phantom” taxable income. The OBBB reverses this for domestic R&D, allowing immediate expensing once again. For instance, a brewery developing an energy-efficient fermentation process can now expense associated engineering and testing costs immediately as opposed to capitalizing the total expense and taking the deduction ratably over a 5-year period. This change encourages innovation without the burden of capitalization. Breweries classified as “small businesses” — with average annual gross receipts of $31 million or less — may amend prior filings or accelerate deductions starting in 2025. These amendments must be filed by July 4, 2026.
The OBBB also introduces a new tax deduction for qualified tips received by individuals in traditionally tipped occupations. While all tips must still be reported to the IRS, employees can now claim an above-the-line deduction of up to $25,000 on their personal tax returns, subject to income limits. It is important to note that automatic gratuities and service charges do not qualify for this exclusion, but there may be strategic planning opportunities to change tipping policies to benefit employees and make more of their tips eligible for this income tax exclusion. In addition to tip income exclusion, a federal tax deduction for eligible overtime pay was also included in the legislation. Although employers must continue withholding applicable payroll taxes, employees may deduct up to $12,500 ($25,000 if married filing joint returns) in qualified overtime compensation on their personal returns, also subject to income limitations.
The OBBB delivers significant tax benefits for brewers, including permanent 100% bonus depreciation, accelerated deductions for QPP, reinstated immediate expensing for domestic R&D, and new personal deductions for tips and overtime pay. It also offers opportunities for eligible breweries to amend prior tax filings to reclaim taxes paid in and research credits utilized as they related to research and development costs previously capitalized.
To learn more about the One Big Beautiful Bill act, visit us at wipfli.com.
Matt Mercurio, CPA is a tax manager with Wipfli LLP in Atlanta, Georgia. Tim O’Neill is a tax senior manager and beverage manufacturing lead at Wipfli LLP in St. Louis, MO.
