Food and Beverage R&D Tax Credit Study
How can food and beverage qualify for the R&D tax credit?
The R&D tax credit (officially “Credit for Increasing Research Activities”) is a dollar-for-dollar reduction to your tax liability and can amount to large savings, not just this year, but retroactively as well. Despite being a huge benefit to food and beverage companies around the country, the credit is often overlooked by both big and small companies. From developing new products to conducting sensory testing, there are qualified activities throughout the food and beverage process. Our R&D credit specialists stay current with relevant IRS whitepapers, regulations, and case law. This accounting and legal knowledge coupled with extensive experience working with food and beverage companies gives us the expertise to assist any food and beverage company with their R&D credit claim.
The internal revenue code, section 41, outlines the requirements for the R&D credit, however, the high-level requirements for an activity to qualify can be summarized by the “four-part test” as explained in the right column.
If your activities satisfy this four-part test, the associated wages, supply costs, and/or third-party contractor expenses could qualify towards the tax credit. We often see the credit amount to 10% of those qualified expenses.
Examples of qualifying R&D job titles
- Biologist
- Chemist
- Food scientist
- Food technologist
- Packaging engineer
- Food safety specialist
- Beverage product manager
- Quality assurance (QA) technician
Commonly qualified activities:
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Developing new food or beverage products with unique formulations, flavors, or ingredients.
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Conducting research to improve the taste, texture, or nutritional content of existing food or beverage products.
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Developing new manufacturing processes or equipment to increase efficiency, reduce waste, or improve product quality.
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Developing new software to optimize inventory management, supply chain logistics, or other areas of operations.
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Conducting sensory testing and consumer research to better understand consumer preferences and behavior.
Example of qualified activities for food and beverage
A food and beverage company has been investing in research and development (R&D) to create new products that meet consumer demand in recent trends. As a result the company has spent $200,000 on R&D activities such as developing new food and beverage products, investigating new packaging materials, and conducting sensory testing.
After analyzing their R&D activities, the company determined that they qualify for an R&D tax credit. The company was able to claim a credit of $20,000, which helped offset their R&D expenses and provided additional funds for future innovation.
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