The last several years have shown a rampant upswing in plant-based products in the U.S. Once considered more “food fad” than the main meal event, plant-based proteins have increasingly gained favor across a wide range of U.S. consumer demographics. A recent report reveals that 17% of consumers between the ages of 15-70 say their entire diet is primarily plant based. The same study shows that a whopping 60% of shoppers are working to reduce the total amount of meat-based foods they eat regularly.
Plant-Based Proteins Offer Opportunity for R&D Tax Credits
Perhaps most importantly for developers, manufacturers, and distributors is the evidence that plant-based food consumption is showing significant long-term staying power. A 2019 article published by the Plant-Based Foods Association showed that total plant-based food sales had increased by 11 percent in the last 12 months, rolling up into a 4.5 billion dollar market sect. The growing demand for these products has brands and companies scrambling to find the “next best thing” in the plant-based protein market, bringing with it the opportunity for business owners to tap into the many benefits offered through the R&D tax credit program.
Innovation Tax Credit: The Basics
First launched in 1981, the federal R&D tax credit offers business owners a credit of 7.9% (20% credit x 50% of the qualified expenses x .79% for the add-back to taxable income) on eligible expenses incurred when developing new and improved processes and products. To qualify for the innovation tax credit, documented expenditures must meet four specific criteria:
- Demonstrate a new or improved process, formula, or product
- Be technological in nature
- Eliminate uncertainties
- Show a process of experimentation
Eligible costs that may qualify for the research and development tax credit include employee salaries/wages, the cost of supplies, expenses related to testing, contractor expenditures, and even expenses incurred when developing a process. Since its inception four decades ago, the R&D tax program has undergone countless iterations. In December 2015, President Obama officially made the innovation tax credit a permanent incentive for businesses. Additionally, starting in 2016, the research and development tax credit can be leveraged to offset the Alternative Minimum tax, enabling startup organizations to use the credit against payroll taxes.
How Plant-Based Food Businesses May Qualify for Research and Development Tax Credit
Food manufacturers in any vertical often miss out on the R&D tax credit. Some organizations don’t know about the program. Others assume their operations are too small or not technical enough to qualify for the credit. It’s important for companies developing plant-based products to understand potential activities within their company that may qualify for the credit to optimize cash flow and protect profit margins. Some possible activities that may demonstrate eligibility for the innovation tax credit include:
- New or improved product development
- Increase speed to market
- Process enhancements
- Research for ingredients
- Recipe developing and blending
- Mixing ingredients to meet sensory requirements, including taste, flavor, scent, texture
- Nutritional specifications
- Improving product shelf life
- Creating or enhancing manufacturing or packaging processes
Is Your Business Missing out on Qualified R&D Activities?
Acena Consulting helps businesses in a wide range of industries use the R&D tax credit to optimize cash flow. Contact our team of experienced tax professionals today to learn more about our process and how your organization can benefit from activities your team is already conducting.