The research and development (R&D) tax credit benefits companies across various industries. While the credit has been around for a while, it is frequently overlooked in the food and beverage industry. However, as food and beverage companies rely more heavily on technology to improve products and increase efficiencies, the importance of reviewing expenditures for the R&D tax credit has become much more critical. The federal R&D credit can be as much as 20% of the qualified expenditures over a base amount and, in addition to the federal tax credit, 41 states have their own R&D tax credit programs, which largely follow the federal definition. These credits can assist your company to continually invest in R&D activities that can help you maximize profits.
There are common misconceptions on what activities qualify for R&D credits, and over the past number of years the credit has been expanding to areas not typically thought of as R&D. As a general rule, activities will qualify if the activity is intended to discover information that would eliminate uncertainty concerning the development or improvement of a product, process, etc. Below are some examples of qualifying activities for the credit that apply to the food and beverage industry:
Food-Related R&D Activities:
Process-Related R&D Activities:
Packaging-Related R&D Activities:
This is a brief list of some activities that could qualify for the R&D credit and is not all inclusive. There are many processes and activities not listed that can qualify.
All activities must be identified and documented, which may require you to change your recordkeeping processes on how you record expenses. Be sure to develop a methodology associating your costs to projects that align with your internal reporting structure. Although the processes needed to claim the credit can take time and resources, the outcome can result in operational and monetary benefits for your company.