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Five key insights on R&D tax credits for the spirits industry
Feb. 4, 2021 · Updated Feb. 20, 2025 · Authored by Kirk Faris, Travis Riley
The spirits industry has a long history of closely guarded recipes, techniques, and methods, but, despite its traditions, the industry is constantly driven towards innovation by evolving market conditions and the need to stay competitive.
However, many in the spirits industry are unaware that developing new or improved products or processes can result in R&D tax incentives that can provide significant savings. This article outlines key information to help distillers benefit from this opportunity.
What is the R&D tax credit?
The federal R&D tax credit is a dollar-for-dollar tax savings that directly reduces a company’s tax liability. Many states also offer R&D credits that resemble the federal credit. There’s no limitation on the amount of expenses and credit that can be claimed each year at the federal level. If the federal R&D credit can’t be used immediately or completely, then any unused credit is carried back one year or carried forward for up to 20 years. Each state may have a different set of carryover provisions.
In addition, previously filed tax returns at the federal level can typically be amended for up to three years to claim the R&D credit retrospectively, providing an avenue to recoup previously paid taxes. Some states may allow you to look back even further to capture unclaimed credits.
For their first five years in business, startup companies may be eligible to claim an R&D tax credit of up to $500,000 per year that can be used to offset their payroll taxes.
How much can a company in the spirits industry save with R&D tax credits?
There’s no limit to how much a company can claim for the R&D credit. However, there are several factors that can impact tax savings. The amount of tax credit available depends on how many qualified costs a company incurs during a specific tax year. See below for details on qualified costs.
In general, a company has the ability to generate a tax credit equal to 7%–10% of its annual R&D costs for federal purposes. The savings could be even greater if that company has an income tax filing obligation in a state that also offers an R&D credit.
Generally, the more a company spends on qualified R&D, the higher the credit generated.
Related sections
How wineries, breweries, and distilleries can claim the R&D tax credit
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.