How R&D Tax Can Drive Profit Margins for Hemp Businesses

3 Minute Read
Posted by Randy Eickhoff on Nov 27, 2019 3:23:05 PM

The research and development tax credit offers extensive cash flow opportunities for hemp business owners across the country. However, this wasn’t always the case. Once classified under Code 280E, hemp was considered a controlled substance by the U.S. government, a categorization that rendered it ineligible for both state and federal tax benefits. However, in 2018, legislators approved the U.S. Farm Bill. Once passed, the U.S. Farm Bill effectively removed hemp and hemp-related products from the controlled substance list and officially placed it under the authority of the U.S. Department of Agriculture.

Understanding the Tax Advantages of Hemp's New Government Status

Hemp's latest government classification has breathed new life in a plant that's been grown and processed in the United States since the early 1600s. For the first time in decades, companies that produce or distribute hemp or hemp-related products find themselves uniquely positioned to benefit from their operations. Now that the IRS ban has been lifted, hemp growers, manufacturers, and distributors are finally able to leverage the benefits of several distinctive tax incentives formerly denied to them, including potential R&D tax credits.


R&D Tax Credit Can Drive Hemp Profit Margins in Several Distinctive Ways

Also known as the innovation tax credit, the research and development incentive was created almost forty years ago to support scientific pursuits and job creation in the U.S. economy. Today, the program offers business owners in over 40 industries access to billions of dollars in earned tax credits, with hemp organizations officially poised to reap potentially significant cash influxes for qualifying operations. 

As with any government-backed initiatives, the size of the innovation tax credit is directly related to the total amount of qualified research expenditures (QREs) a company incurs. Some eligible activities may include experimentation, testing methods, agricultural development, use innovation, and harvesting methods. However, often, the biggest single qualifying expense for a hemp organization is the W-2 wages paid to employees who conduct job operations that are outlined as eligible in Section 41 of the Internal Revenue Code.


Working With a Tax Specialist Can Help Your Hemp Business Optimize R&D Tax Credit

The IRS offers specific parameters regarding all qualifying research expenditures. However, like most tax programs, the research and development initiative does leave room for interpretation. Many hemp owners may inadvertently miss out on eligible tax credits simply because they aren't confident about what possible definitions include and restrict. 

The best way for hemp growers and manufacturers to optimize cash flow from research and development is to partner with a seasoned team of R&D tax credit professionals. An established accounting firm will carefully analyze every operation in your hemp business to pinpoint all relevant activities. Additionally, a skilled firm will also be able to identify less apparent efforts that most business owners wouldn't assume could qualify for the credit. Your chosen expert will capture the designated tax credit and develop the paper trail needed to support each entry and ensure your hemp organization remains fully compliant in the event of an audit.

Contact Acena Consulting Today

Acena Consulting helps business owners in the hemp industry leverage the R&D tax credit to maximize cash flow. Contact us to schedule a consultation with one of our seasoned specialists today.

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Randy Eickhoff

Randy Eickhoff

Acena Consulting President Randy Eickhoff, licensed CPA, has partnered with more than 200 companies during more than 20 years of experience securing tax credits and other government incentives. His corporate partners range from multinational technology firms to smaller, privately held manufacturing, sports, and technology enterprises.