Food and Beverage R&D Tax Credit Benefits for Businesses

Food and Beverage and the R&D Tax Credit

Small businesses in the Food and Beverage sector can significantly benefit from the R&D Tax Credit by offsetting costs associated with developing new recipes, improving production processes, or enhancing food safety. For startups with low or no income tax liability, the R&D tax credit payroll tax offset is particularly beneficial: it allows eligible companies to claim up to $500,000 per year against their payroll taxes. This can free up critical cash flow, allowing for further innovation, hiring, or expansion of operations, ultimately making it easier for small businesses in the food and beverage industry to grow and remain competitive.

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Founded in 1984 by J.W. Norris as Reed & Co., Swanson Reed has grown to become one of the world’s largest firms specializing in Research and Development (R&D) tax credit consulting. We boast numerous publications. Our AI software, TaxTrex, is a cutting-edge AI language model capable of preparing R&D tax credit claims in just 90 minutes. Our R&D tax audit insurance policy, creditARMOR, is one of the most cost-effective audit management products on the market.

If you have questions or need further assistance, call or email our CEO, Damian Smyth, at (000) 000-0000. Feel free to book a short call with one of our national R&D tax credit specialists at a time convenient for you.

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Case Study: Food and Beverage Sector

Business Scenario

This case study exemplifies the application of key legislative requirements for eligible R&D activities, applied to relevant activities in the food and beverage sector.

Bryan Beef is a private producer of processed beef products for the food and retail industries in the United States. As part of the food and beverage sector, Bryan Beef constantly focuses on developing new products to remain competitive in the industry. It regularly conducts R&D activities to create new products related to food safety, cost reduction, organic/natural products, dietary guidelines, and sustainable resources.

To keep up with the times, Bryan Beef launched an R&D project with the primary business goal of producing certified organic beef products. To do this, Bryan Beef had to completely reinvent its production process.

Bryan Beef had never claimed the R&D tax credit before and believed its activities did not qualify. To be eligible, it had to meet four main criteria, known as the Four-Part Test. After meeting with a specialist, Bryan Beef realized it was eligible for the credit.

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Bryan Beef’s Eligible R&D Activities

The R&D tax credit specialist helped Bryan Beef determine its qualifying R&D activities, many of which were part of the company’s daily operations. Bryan Beef’s Qualified Research Expenses (QREs) included:

Development of new or improved product formulations to meet changing consumer preferences;
Development of new packaging to extend product shelf life;
Modifications to existing production processes to comply with new regulations;
Development of production processes to accommodate new products or optimize processing;
Automation of production functions to minimize product contamination;
Continuous improvement projects aimed at reducing scrap, waste, and spoilage and/or conserving water and utilities; and
Modifications to machinery layout to reduce production times and increase output.

Bryan Beef claimed the federal R&D tax credit and obtained more than $140,000 in credits. A sustainable methodology was also established to help the company identify, document, and substantiate eligible R&D projects and costs on an ongoing basis.

Live Webinar: The R&D Tax Credit in the Food and Beverage Sector

Duration: 60 Minutes

Learning objectives include:

An overview of R&D Tax Credits
Identifying Qualifying Research Activities
Defining the 4-Part Test
How to substantiate activities through documentation
Identifying Qualifying Research Expenses

Cost: FREE

Knowledge Level: Basic*

R&D Tax Credit Training for the Food and Beverage Sector

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Definition of Qualified Research

Qualified research consists of research activities with the intent to develop new or improved business components. A business component is defined as any product, process, technique, invention, formula, or computer software that the taxpayer intends to hold for sale, lease, license, or actual use in their trade or business.

The Four-Part Test

Activities eligible for the R&D Credit are described in the “Four-Part Test,” which must be met for the activity to qualify as R&D.

Permitted Purpose: The purpose of the activity or project must be to create new (or improve existing) functionality, performance, reliability, or quality of a business component.
Elimination of Uncertainty: The taxpayer must intend to discover information that eliminates uncertainty regarding the development or improvement of the business component. Uncertainty exists if the information available to the taxpayer does not establish the capability of development or improvement, the method of development or improvement, or the appropriate design of the business component.
Process of Experimentation: The taxpayer must undertake a systematic process designed to evaluate one or more alternatives to achieve a result, where the capability or method to achieve that result, or the appropriate design of that result, is uncertain at the beginning of the taxpayer’s research activities.
Technological Nature: The process of experimentation used to discover information must fundamentally rely on principles of the hard sciences such as physical or biological sciences, chemistry, engineering, or computer science.

What specific records and documentation did Bryan Beef keep?

Similar to any tax credit or deduction, Bryan Beef had to keep business records outlining what it did in its R&D activities, including experimental activities and documents to prove the work occurred systematically. Bryan Beef kept the following documentation as evidence:

Project logs / lab notes
Conceptual sketches
Design drawings
Photographs / videos of various construction / assembly / testing stages
Prototypes
Test protocols
Results or analysis logs from tests / trials
Tax invoices

By having these records on file, Bryan Beef confirmed it was ‘audit-ready’ — meaning that, in the event of an audit, it could present documentation illustrating the progression of its R&D activity, thus demonstrating its eligibility for R&D.