Running a winery means living with long timelines. You make decisions today that may not show up in revenue for months or even years. Grapes are grown, harvested, fermented, aged, bottled, and finally sold through a mix of tasting room, wine club, wholesale, and direct-to-consumer channels. Throughout that entire process, inventory quietly becomes one of the most important drivers of both financial clarity and tax compliance.
For many wineries, inventory tracking feels overwhelming. The numbers change constantly. Costs pile up long before sales occur. Losses happen naturally through evaporation, racking, blending, and breakage. When inventory systems don’t reflect the realities of winemaking, financial reports stop being useful, and tax exposure increases.
In 2026, the fundamentals of inventory accounting remain familiar, but expectations around consistency, documentation, and accuracy continue to matter. The good news is that with the right structure and habits in place, learning how to track wine inventory can become a strategic tool instead of a constant source of stress.
Why Wine Inventory Accounting Is Challenging
Wine inventory is not a single item sitting on a shelf. It moves through multiple stages, each with its own costs and accounting implications.
A typical wine inventory life cycle includes grapes in the vineyard, juice and wine in process, bulk wine in barrels or tanks, bottled finished goods, and packaging materials such as bottles, corks, capsules, and labels. Each stage represents a different form of inventory that needs to be tracked separately.
What makes this especially challenging is timing. Costs are incurred steadily, while revenue arrives much later. If inventory is not valued accurately at each stage, the cost of goods sold becomes unreliable, and margins lose meaning.
From a tax perspective, inventory valuation directly affects taxable income. Understated inventory increases cost of goods sold and reduces taxable income. Overstated inventory does the opposite. That is why the IRS expects wineries to apply inventory methods consistently and maintain clear documentation year over year.
The Core Inventory Categories Wineries Should Track
Before choosing systems or valuation methods, wineries need to be clear on what they are actually tracking.
Vineyard inventory includes grape growing costs such as labor, farming supplies, water, equipment use, and maintenance. These costs often get overlooked or expensed too early.
Work in process inventory includes juice, fermenting wine, and wine aging in barrels or tanks. This is where most production costs accumulate, including cellar labor, barrels, additives, utilities, depreciation, and facility overhead.
Finished goods inventory includes bottled wine ready for sale. At this stage, costs should already include everything required to produce that bottle, not just bottling supplies.
Packaging and supplies inventory includes bottles, corks, labels, capsules, and cartons that have not yet been used. These are inventory assets until they are consumed in production.
Separating these categories is foundational. Without this structure, it becomes nearly impossible to understand true cost per case or explain inventory values during a tax review or audit.
Choosing The Right Wine Inventory Valuation Method
Once inventory categories are clear, the next decision is how costs are assigned to that inventory.
Specific identification is often the best fit for wineries. This method tracks costs by lot, vintage, or batch, allowing wineries to match actual production costs to specific wines. It requires discipline and good systems, but it provides the most accurate picture of profitability by wine.
First in first out (FIFO) assumes older inventory is sold first. This can work for some wineries but may not reflect reality when wines are released out of sequence or aged differently.
Weighted average cost smooths costs across similar wines or batches. This can simplify reporting but may hide meaningful cost differences between vintages or production runs.
Regardless of the method chosen, consistency is critical. Switching methods without proper planning can create tax complications and distort financial comparisons. Any method must also align with capitalization requirements and inventory rules outlined by the IRS.
What Production Costs Should Be Capitalized Into Wine Inventory
One of the most common inventory issues we see is improper cost capitalization.
Many wineries expense production labor, utilities, or depreciation as period costs rather than capitalizing them into inventory. This makes early financials look cleaner but causes inventory to be undervalued and margins to be overstated once wine is sold.
Production-related labor, cellar supplies, equipment depreciation, facility costs, and certain overhead expenses generally belong in inventory until the wine is sold. This applies whether the wine is in tanks, barrels, or bottles.
In 2026, documentation matters just as much as methodology. Wineries should be able to explain what costs are capitalized, how allocations are calculated, and why the approach is reasonable for their operation.
How To Track Volume Changes, Losses, and Blending Accurately
Wine is a living product. Losses occur naturally through evaporation and handling. Blending changes both volume and cost allocation. These realities need to be reflected in inventory records.
Shrinkage allowances should be reasonable, documented, and consistent. Sudden unexplained losses raise red flags. Blending should trigger cost reallocations so that finished wines reflect the combined costs of all components used.
Regular physical counts and reconciliations are essential. Tank readings, barrel inventories, and bottled case counts should align with accounting records. When discrepancies appear, they should be investigated and resolved promptly rather than ignored.
Accurate volume tracking also supports compliance reporting with agencies such as the Alcohol and Tobacco Tax and Trade Bureau, which relies heavily on inventory data.
How Wine Inventory Affects COGS, Financial Statements, And Cash Flow
Inventory does not live in isolation. It directly impacts financial statements and cash planning.
On the income statement, inventory valuation drives cost of goods sold and gross margin. Inaccurate inventory leads to misleading profitability.
On the balance sheet, inventory is often one of a winery’s largest assets. Overstated inventory inflates assets, while understated inventory masks the true investment tied up in aging wine.
From a cash flow perspective, inventory represents cash that has already been spent but not yet recovered. Understanding how much cash is tied up in bulk wine versus finished goods helps owners plan production, releases, and financing more confidently.
Wineries that integrate inventory tracking into cash flow forecasts are far better positioned to handle harvest costs, bottling runs, and slower wholesale payment cycles.
Need Help With Tracking Your Wine Inventory?
Wine inventory is not just an accounting requirement. It is a reflection of how well a winery understands its own business. When inventory is tracked accurately and consistently, pricing decisions improve, margins make sense, cash flow becomes more predictable, and tax compliance feels manageable rather than overwhelming.
The complexity of wine production is not going away. What can change is how confidently that complexity is managed behind the scenes.
If you want support building inventory systems that reflect the realities of your winery and stand up to financial and tax scrutiny, the team at Llamas Financial is here to help.
We work with wineries across the country to bring clarity to their numbers so owners can focus on making great wine and growing sustainable businesses.
