If the research and development tax credit has taught us any one thing throughout its almost forty-year tenure, it's that its ever-evolving legislation is often full of surprises. This is especially true about companies that qualify for the innovation tax credit. Many business owners still assume that, in order to leverage the cash flow opportunities offered through this government-backed research and development program, they must operate specifically within the science or technology vertical. They believe because they don't have onsite scientists and labs, their organization doesn't demonstrate evidence of eligibility for this potentially lucrative tax incentive.
A Wide Range of Industries Qualify for the Research and Development Tax Credit
The R&D tax credit has undergone extensive changes since its inception in 1981. The evolving legislation of this dollar-for-dollar tax incentive has helped broaden its reach beyond what most people consider conventional "research" companies to include enterprises in over forty industries. R&D tax credit qualifications have less to do with a specific vertical and everything to do with the internal operations of an organization.
Any operation that passes a four-part test may qualify for the tax credit. To pass the four-part test, an operation or function must:
- Eliminate uncertainty
- Include a process of experimentation
- Be technological in nature
- Serve a qualified purpose
The broad nature of the four-part research and development test enables organizations across multiple fields to participate in the incentive program. Some of the more surprising industries that can claim the R&D tax credit include:
Many agronomy businesses don't realize that their operations qualify for the research and development tax program. However, several of the day-to-day functions in the agricultural vertical are eligible for the credit. Some typical qualifying activities may include:
- Enhancing existing harvest strategies
- Developing new crop strains
- Designing new irrigation systems
- Creating new techniques to boost harvest yields
- Developing methods to safeguard plants and livestock from disease
Wineries, Breweries, and Distilleries
Most people don't associate wineries, breweries, and distilleries with research and development activities. Yes, the process for making wine and other libations are well established; however, vineyards, breweries, and distilleries are constantly innovating new strategies, systems, and technologies to optimize efficiencies and output into the marketplace. Just a few of the many eligible operations include:
- Developing new irrigation systems
- Creating new or improved bottling or packaging
- Improving production mix
- Developing new flavor profiles
- Experimenting with equipment to drive production efficiency
- Developing new or enhanced preservation components
You don't have to create an entirely new food product to qualify for the innovation tax credit. The recent upswing in consumer demand for fresher, more naturally developed provisions has revamped the food science industry, allowing for a wider swath of organizations to claim the R&D tax credit. A few of the many examples of qualifying activities may include:
- Improving a product's longevity, texture, or flavor
- Experimenting with ingredient substitutions that impact quality, texture, or consistency
- Creating trial batches of food products in a test kitchen
- Improving manufacturing strategies to lower waste or reduce foodborne illnesses
- Developing improved food packaging
Partner with a Qualified R&D Tax Credit Consultant
Beyond the farming, food, and beverage verticals, countless other industries qualify for the research and development tax incentive. The best way to ensure your enterprises optimize returns every year is to partner with a firm that specializes in the research and development field. A qualified team of advisors will quickly work through your operations to pinpoint eligible activities that maximize cash flow opportunities. Your professional provider can even go back to previous years and file for missed credits for direct, bottom-line impact in your organization.
For more information about your company's R&D tax credit eligibility, contact Acena Consulting today.