Four things to know about R&D tax credits for the agribusiness industry

The agribusiness industry is no stranger to innovation as it works to meet increasing market demands. Substantial tax incentives, such as the R&D tax credit, are available to help support and sustain continued development in the industry.

But first, what is the R&D tax credit?

The R&D tax credit is available to a broad range of agribusiness companies developing new or improved products or processes, including software, that result in increased performance, functionality, efficiency, reliability, or quality.

It’s a dollar-for-dollar tax savings that directly reduces a company’s tax liability. There’s no limitation on the amount of expenses and credit that can be claimed each year. If the R&D credit can’t be used immediately or completely, any unused R&D tax credit can be carried forward for up to 20 years. In addition, previously filed tax returns can typically be amended for up to three years to claim the R&D credit retrospectively, providing an avenue to recoup previously paid taxes.

New or small business may be eligible to apply the R&D tax credit against their payroll tax for up to five years starting in 2016. The R&D credit is available both at the federal and state level, with approximately 40 states offering an R&D credit to offset state tax liability.

To help break down this complex topic, here’s a list of common questions agribusiness companies have about the R&D credit.

How much can a company save with R&D tax credits?

Companies can receive a credit refund of up to 11% of their qualified expenses, depending on a number of factors. Generally, the more a company spends on qualified R&D, the higher the credit they’ll receive, with taxpayers receiving a larger credit if they increase R&D spending year over year.

What types of R&D activities qualify for the R&D credit?

There are two main types of activities that may qualify for the R&D credit:

• Developing new or improved products
• Developing new or improved processes

The most common qualified R&D activities for agribusiness are generally related to process improvements, although many companies may also invest significant resources in new product development.

With food safety, quality, and sustainability top concerns for the industry, many agribusiness companies are investing in development of equipment and systems for fertilization and irrigation in the fields as well as processing, packaging, and storing product inventory. The costs related to new or upgraded equipment — and the labor and materials dedicated to process or product development projects — could qualify for the R&D credit.