Issue link: http://winesandvines.uberflip.com/i/66152
E CONOMICS work well on things like computers, bar- rels and other equipment that has a fairly short useful lifespan." With equipment such as stainless steel tanks, where the fair market value can still be high years down the road, an operating lease may not be such a good deal. With a capital lease, the buyout amount it's not fair market value based, it is built into the lease at a fixed amount. "Typi- cally there are two choices: a $1 buyout at the end of the lease or a percentage of the original invoice amount. The higher the buyout amount, the lower the lease payments can be," Guffey said. "The client owns the equipment and it appears on the balance sheet and they get to expense the depreciation as a tax de- duction with a capital lease. But, then the lease payments tend to be higher because the lessor isn't getting the tax break," Guffey concluded. Taxing matters Jon Dal Poggetto CPA, managing part- ner of Dal Poggetto & Co. LLP, Santa Rosa, Calif., has been involved with the wine industry for his entire public accounting career, which spans 36 years. Dal Poggetto, who has worked with TOMMY more than 200 wineries and vineyards, remarked, "I have seen a trend of more barrel leasing in the past seven years by wineries of all sizes." "My own philosophy is to buy assets that have appreciation potential and lease assets that depreci- ate in value rapidly." —Jon Dal Poggetto, Dal Poggetto & Co., LLP "Barrels are like automobiles, in that they depreciate in value very rapidly. Operating leases are a popular way to finance the use of depreciating assets. My own philosophy is to buy assets that have appreciation potential and lease assets that depreciate in value rapidly," he said. Dal Poggetto then touched on the tax implications of leasing. "Under current tax law, the operating lease does not provide a federal income tax deduction as rapidly as GRAPE SORTING MACHINE TOMMY CMA's New TOMMY post-destemmer Automatic Sorting System TOMMY is a compact sorter, quickly adjustable for different grape varietals, with easy disassembly for cleaning. Tested in the 2009 Harvest where winemakers overwhelmingly commented on its success. PLEASE CONTACT US FOR ADDITIONAL INFORMATION. NEW a purchase of barrels—either for cash or financed through debt or a capital lease— because there is 100% bonus depreciation available for new asset acquisitions made in 2011 and 50% bonus depreciation for acquisitions made in 2012. In addition, there is the Section 179 deduction avail- able in 2011 and 2012. The state of Cali- fornia does not conform to these generous federal tax provisions, however." Further illustrating tax benefits of leasing, Dal Poggetto continued, "In an operating lease, the lease payments are expensed as they are paid and are all deductible for federal and state tax pur- poses. If someone entered into an operat- ing lease Jan. 1, 2011, they would deduct 12 payments in 2011. If it is a three-year lease, that would represent 1 payments under the lease. For simplicity, assume the total lease is for $36,000; they would deduct $12,000 in 2011. "If they purchase the barrels, and the barrels have a cost of $32,000, they could expense the entire $32,000 in 2011 for federal tax purposes. For California tax purposes, they may be able to deduct $25,000— the Section 179 limit for Cali- fornia tax purposes—if they are profit- able. Otherwise, they could depreciate the /3 of the total BOTTLING & PACKAGING CRUSHERS PRESSES TANKS PUMPS REFRIGERATIONS FILTERS AWS/Prospero 7787 Bell Road Windsor, CA 95492 Phone: (707) 838-2812 Fax: (707) 838-3164 westcoast@prosperocorp.biz West Coast P.E.C. Geneva 1902 Route 14N Geneva, NY 14456 Phone: (315) 719-0480 Fax: (315) 719-0481 geneva@prosperocorp.biz Finger Lakes Main Office Prospero Equipment Corp. 123 Castleton Street Pleasantville, NY10570 Phone: (914) 769-6252 Fax: (914) 769-6786 info@prosperocorp.biz Wines & Vines sePTeMBeR 2011 33