New brewery business owner confused: Should I file 1120 or 1065 for partnership with investors?

I'm in the planning stages of launching a craft brewery with my cousin and we've got a few friends who want to invest in our venture. We've been researching different business structures, but I'm getting confused about tax implications. From what I've gathered about Form 1120, we could set up as an S-corporation which would essentially be a partnership with our investors. The way I understand it, the business itself wouldn't be taxed directly, but instead the tax obligations would pass through to me, my cousin, and our investors as profits (fingers crossed!) start coming in. I'm wondering if there's any reason we should consider a C-corp structure instead? When looking at Form 1065, it seems like a more straightforward partnership setup. It basically outlines how money moves into and out of the business. For our brewery situation, I'm wondering how this would work with our investor structure and which option would be better for our specific circumstances. Any advice from people who've started similar businesses would be really appreciated! We're excited about the brewing part but all this tax and business structure stuff is making my head spin.

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18 comments

James Maki

•8M

I've helped several small business owners in similar situations. Let me break this down in simple terms: An S-Corporation (Form 1120-S, not just 1120 which is for C-Corps) is indeed a pass-through entity. Profits and losses pass through to shareholders who report them on personal returns. This avoids the "double taxation" of C-Corps. S-Corps have some restrictions though - you can only have up to 100 shareholders, all must be US citizens/residents, and you can only have one class of stock. A partnership (Form 1065) is also a pass-through entity, but offers more flexibility in how you structure profit/loss sharing and distributions. This can be advantageous if your investors want different rights or returns. The real question is about your long-term goals. Are you planning to keep the brewery relatively small with a handful of investors? S-Corp might work. Planning to grow substantially, potentially take on many more investors or go public someday? C-Corp might be better despite the double taxation.

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Kayla Morgan

•8M

Thanks for the clarification! I didn't realize I was confusing 1120 and 1120-S. We're definitely planning to stay small-medium sized, probably won't ever have more than our initial 5-6 investors. One thing I'm concerned about is flexibility with distributions - we want to reinvest most profits back into the business for the first few years with minimal payouts to investors. Does one structure handle this better? Also, what about self-employment taxes? I heard S-corps might have some advantages there?

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James Maki

•8M

S-corps can definitely provide savings on self-employment taxes. As an owner-employee, you'll pay yourself a "reasonable salary" which is subject to FICA taxes, but any additional distributions you take as profit aren't subject to those self-employment taxes. This can result in significant savings. Regarding reinvesting profits, both structures allow for this, but the partnership agreement or corporate bylaws need to be carefully drafted. With an S-corp, profits are taxed to shareholders whether distributed or not, so your investors will pay taxes on their share of profits even if that money stays in the business. With a partnership, you can create special allocations in your partnership agreement that might give you more flexibility, though the IRS has rules about these arrangements.

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Jasmine Hancock

•8M

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Jasmine Hancock

•8M

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Cole Roush

•8M

Just wanted to follow up - I ended up trying taxr.ai for my fitness studio business structure questions. Really glad I did! The analysis spotted that my planned equipment leasing arrangement would create unexpected tax complications under an S-corp structure but work fine under an LLC taxed as a partnership. The report broke down exactly how much I'd pay in taxes under each scenario based on my 3-year financial projections. The insights about self-employment tax strategies alone saved me thousands. And the comparison of 1065 vs 1120-S filing requirements made it crystal clear which path made more sense for my specific situation. Definitely recommend for any new business owner trying to figure out entity structure. It's been a huge help making a confident decision rather than just guessing or following generic advice.

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Arnav Bengali

•8M

Just my two cents from dealing with IRS headaches for years - whatever structure you choose, you'll inevitably have questions for the IRS at some point. When that happens, good luck getting anyone on the phone! I recently discovered a service called Claimyr (https://claimyr.com) that actually got me through to a human at the IRS in about 15 minutes when I had questions about my business taxes. They have a demo video here: https://youtu.be/_kiP6q8DX5c that shows how it works. Basically saved me hours of redial hell. When I had questions about filing my 1065 K-1 forms for my partners, this was a lifesaver.

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Arnav Bengali

•8M

It's not auto-redialing - they use a system that monitors IRS phone queue availability and puts your call through at the optimal moment. I don't know exactly how the technology works, but it's not just brute-forcing it with redials. They have relationships with the IRS phone systems that somehow allow their calls to get prioritized. I was skeptical too, but when I was desperate with a filing deadline approaching, I tried it. Got connected to an actual IRS agent in about 15 minutes who answered my specific questions about partner distributions on my 1065. Saved me from making a filing error that would have been a nightmare to fix later.

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Scarlett Forster

•8M

I need to publicly eat my words. After struggling for THREE DAYS trying to get through to the IRS about a question on our brewery's EIN application, I remembered this thread and decided to try Claimyr out of desperation. Got through to an IRS agent in 17 minutes. SEVENTEEN MINUTES. The agent was actually helpful and solved my issue with our business formation paperwork. I literally couldn't believe it worked. If you're dealing with business tax questions like the original poster, being able to actually speak with the IRS and get definitive answers instead of guessing is invaluable. Completely changed my perspective on dealing with tax questions - turns out the IRS people are helpful when you can actually reach them!

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Rachel Tao

•8M

Brewery owner here! We went with an LLC taxed as an S-Corp (1120-S) and it's been great for our situation. The self-employment tax savings are substantial. One thing to consider - with craft breweries, equipment depreciation is a big deal tax-wise. The other advantage to S-Corp status is that it looks more established to distributors and larger retailers. We found this helped when trying to get our beers into larger chains and regional distribution networks. Make sure whatever you decide, you have solid operating agreements that clearly outline capital contributions, profit distributions, and decision-making authority. The tax form is just one part - the legal structure between partners is equally important.

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Rachel Tao

•8M

Great question! For breweries, this is indeed tricky. We looked at what comparable positions would earn in our area (head brewer, operations manager, etc.) and set salaries accordingly. For the first two years, our salaries were about 50-60% of our total compensation, with the rest as distributions. The IRS does look closely at this industry, so we documented our salary-setting process carefully. We also made sure our salaries increased as the business grew more profitable. Having documentation that shows your salary determination wasn't arbitrary is key if you ever get questioned. Our accountant had us keep notes from our meetings where we discussed compensation and market rates.

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