A Sonoma, California Winery Just Filed Chapter 11 With $39M in Liabilities. At 63, His Vineyard Loss Can Offset His Wages in Social Security’s Earnings Test

Sonoma’s Gundlach Bundschu Winery, founded in 1858, filed for Chapter 11 on September 23 after cutting expenses by more than 40%. Its filing listed about $39.1 million in liabilities against $17.2 million in assets. The winery plans to stay open while it restructures.

Wine country is struggling, and small growers are feeling it. Consider a hypothetical 63-year-old collecting Social Security who works a job paying wages and runs a small vineyard as a sole proprietor. This year the vineyard lost money. He assumes his paycheck alone will cause Social Security to withhold part of his monthly check. He may have missed a deduction built into Social Security’s earnings test.

His Paycheck Is Only Half of Social Security’s Math

At 63 in 2026, his full retirement age (FRA) is 67. Until then, Social Security applies an earnings test. Think of it as a speed limit on work income. In 2026 the limit is $24,480, and the agency holds back $1 of benefits for every $2 earned above it.

Say he earns $40,000 in gross wages this year. If Social Security counts only his paycheck, it would hold back $7,760. That comes to about $647 a month.

Social Security’s rule adds wages and net self-employment earnings together, then deducts a qualifying net self-employment loss. Suppose the vineyard had a real net loss for the same year:

• Gross wages: $40,000
• Vineyard net self-employment loss: $20,000
• Countable earnings: $20,000

That leaves him $4,480 under the limit, so the annual test calls for no hold back at all. The vineyard loss wiped out the entire $7,760.

One detail trips people up. When a sole proprietor makes a profit, Social Security counts 92.35% of it. For a loss, the agency tells its staff to use the actual net loss with no adjustment. The full $20,000 gets deducted.

This example assumes he started benefits before 2026, so the annual test applies all year.

Losses That Look Similar But Won’t Reduce His Earnings

The loss has to come from a real vineyard business run to make a profit, where allowable business expenses were higher than business income. Several losses that seem similar don’t count:

1. A buyer’s bankruptcy. Even if a winery that buys his grapes files Chapter 11, the filing by itself doesn’t create a net self-employment loss Social Security can use here.
2. Falling land values. A lower assessment on his acreage leaves his business income and expenses the same.
3. Investments in other companies. Money lost investing in someone else’s business stays outside his own self-employment calculation.
4. S corporation losses. If the vineyard were set up as an S corporation, a loss passing through to his tax return would not count as a net self-employment loss.

Timing Rules That Can Wipe Out the Offset

The offset only works within one tax year. A 2026 vineyard loss can reduce 2026 wages. A net operating loss carried forward from an earlier year can’t, even if it lowers his taxable income.

The offset also leaves two things unchanged. He doesn’t get back the payroll taxes already taken from his paychecks. And he still has the permanent reduction he accepted by taking early.

Any benefits that do get withheld are accounted for later. At FRA, Social Security recalculates his benefit to credit him for months when checks were withheld. Still, cash that’s held up for years costs a lot when a business is bleeding money now.

Get the Paperwork in Order Before Withholding Starts

Social Security’s first withholding estimate may be based on his wages alone. Before accepting it, he should document the qualifying business loss and confirm it belongs to 2026, then give Social Security an updated earnings estimate.

Together, his W-2, his Schedule F (the farm income form on his tax return) and his business records should show how the wages and the loss fit together. He should confirm how the loss is treated, because not every deduction on a tax return produces this result.

A Hard Harvest Shouldn’t Cost Extra

The vineyard still lost $20,000. Holding back $7,760 from his Social Security payments doesn’t turn that into a good year. But counting only his paycheck would make a bad harvest more expensive than Social Security’s rules require.

The mistake hardest to fix is allowing benefits to be held back for months because of an incomplete estimate. Small facts, like how the business is set up or which year a loss falls in, can change the answer. Check the numbers against his own records well before the year ends.

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