How agtech companies can use R&D tax credits

The federal R&D tax credit is a dollar-for-dollar tax savings that directly reduces a company’s regular tax liability. In general, companies can generate a credit of approximately 10% of their qualified expenses, depending on several factors. If the R&D credit can’t be used immediately or completely, any unused credit can be carried back one year or carried forward for up to 20 years. Additionally, over 30 states offer R&D tax credit incentives to further increase a company’s savings. For certain start-up companies, up to $250,000 in federal R&D tax credits generated in tax years beginning before 2023 may be available to offset payroll tax. The Inflation Reduction Act increased the amount to $500,000 for tax years beginning in 2023. Start-up companies that are eligible to elect the payroll tax offset include those that both: Never had gross receipts or only had them within the last five years Have less than $5 million in gross receipts during the credit year

What’s the next step to claim the R&D credit?

If you think your company qualifies for the R&D credit, the first step is to collect preliminary information about your company’s potential qualified activities. That information can be used to develop an estimate of the credit benefit your company could receive as well as to identify other R&D-related tax planning opportunities, so you can make an informed decision about whether an R&D credit analysis is worthwhile for your company. R&D tax credits can provide cash savings for a company focusing on development efforts. However, with increased scrutiny around R&D credits at the federal and state levels, it’s crucial to understand what’s necessary to substantiate a credit claim, as mistakes can be costly. Each company’s goals and resources are unique, which makes it important to develop a customized project plan to identify, calculate, and support a company’s R&D tax credits.

Article

How agtech companies can utilize the R&D tax credit

March 29, 2023 · Authored by Sara Bailey, Josh Harbin

Agriculture technology, also known as agtech, is rapidly growing and could disrupt and innovate agribusiness. Agtech companies developing novel technologies could overlook strategic tax credits and incentives.

Specifically, the R&D tax credit can help agtech companies grow.

How agtech is changing agriculture

From the first agricultural revolution nearly 12,000 years ago to the green revolution of the 1950s and 1960s, transformative periods in agriculture have been marked by technological advancements in:

Production
Mechanization
High-yielding crop breeds

However, the agriculture industry is sometimes seen as less advanced in terms of innovation and digitization.

A new agricultural revolution is underway, promising solutions to challenges around food insecurity, environmental conditions, resource constraints, and more.

This new era is marked by investments in agtech. Fortune 100 and start-up companies alike are taking action to blend the expertise of conventional agriscience methods with advancements in fields such as software and biological engineering.

Much like the manufacturing sector’s Industry 4.0, the agtech revolution is heavily based in advanced technologies such as, but not limited to:

Artificial intelligence
Robotics
Automation
Data analysis

The agriculture challenge

The agriculture industry needs to sustainably increase agricultural production to feed a growing world population while still maintaining an economically viable business. Three themes emerge from the current challenge:

Production
Profitability
Protecting the environment

Production

Sara Bailey

Principal

Related sections

Agribusiness

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The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

How agtech companies can utilize the R&D tax credit

How agtech is changing agriculture

The agriculture challenge

Production

Sara Bailey

Related sections

Not-for-profit makes internal reporting changes to align with its external ESG efforts

Profitability

Protecting the environment

Agtech trends

Robotics

Controlled environment agriculture

Crop monitoring and precision farming

Livestock technology

Biotechnology

How agtech companies can use R&D tax credits

Qualifications for R&D tax credits

Qualified purpose

Elimination of uncertainty

Process of experimentation

Technological in nature

Qualifying expenses for R&D tax credits

Wages

Supplies

Computer rental

Contractor expenses

What’s the next step to claim the R&D credit?

Have questions? Baker Tilly can help.