Article
R&D tax credit: A cash flow opportunity for food & beverage
June 2, 2020 · Authored by Ryan Kuenzi, Liddy Steele
Companies in the food and beverage industries are continually developing new or improved products to meet ever-changing trends in consumer demand. These companies are also investing in or evaluating their processing systems and equipment to identify opportunities to reduce cost, improve product quality, or increase production.
More recently, the food and beverage industries has been at the forefront of innovation to improve employee and product safety in response to the COVID-19 pandemic.
The innovation and development activity across the food and beverage industries make it a natural fit for R&D credits. The R&D credit can help improve cash flow, enabling businesses to invest in other objectives — such as making improvements to their manufacturing lines, hiring or retaining employees, or developing the next line of innovative products and processes.
But first, what is the R&D tax credit?
R&D credits apply directly to offset a company’s tax liability and have the potential to reduce tax liability to $0 for eligible small businesses. 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 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. The R&D credit is available both at the federal and state level.
To help break down this complex topic, here’s a list of answers to common questions food and beverage companies have about the R&D credit.
How much can a company save with R&D tax credits?
The amount of R&D tax credit a company can claim depends on several factors, but it’s primarily based on the amount of expenses that are determined to be eligible for the credit and not the revenue generated by a company.
Generally, the amount of federal credit is approximately 5%–10% of a company’s development expenses during a given year. This figure can be much higher when state credits are factored in.
What does the R&D credit apply to?
There are two main types of activities that may qualify for the R&D credit:
- Developing new or improved products
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.