The Research and Development Tax Credit offers a substantial financial advantage for innovative breweries.
As craft, micro, and other small breweries increasingly experiment with new flavors and processes, the reasons to leverage these tax incentives are only growing.
The research and development tax credit encourages businesses to innovate and think ahead. It credits an average of 6.5-10% of QREs (Qualified Research Expenditures) including wages, supply costs, and contracted research expenses.
The R&D tax credit applies mainly to small and medium-sized businesses. It provides tax incentives for:
The R&D tax credit provides tax breaks to companies that conduct research and develop new products, improvements, and other innovations
If the firm has been in business for less than 5 years and has less than 5 million in gross receipts, the R&D tax credit can be applied to payroll taxes. This allows firms that have yet to profit to benefit.
Yes, breweries can claim the R&D Tax Credit.
The credit applies to activities done by any company that uses research and development to experiment with and improve its business products or processes using the hard sciences.
The IRS uses a four-part test to check whether different activities qualify for the credit. For breweries, things like the development of new brews, improvements on existing formulas, and changes to the brewing process can all qualify.
Breweries explore uncharted territories with their creations and different kinds of brewing technology, and the experimental nature of their craft allows their business to qualify for the R&D credit.
Claiming the R&D tax credit for brewing companies is not too complicated. You can follow the steps below to get started:
To qualify for the R&D Tax Credit, a brewery's activities must be substantiated through record-keeping that aligns with the IRS requirements for qualifying research activities (QREs). Here’s how to check:
To qualify for the R&D Tax Credit, your projects must be engaged in activities that pass the four-part test that was created by the precedent set by the 2023 IRS case:
Although still somewhat subjective, using previous examples to show that one’s efforts fall within the four parts is the most straightforward way to claim your case.
To confirm if your brewery’s activities qualify for the R&D tax credit, you can talk to a tax planning team.
A tax attorney knows the tax code best and can maximize your claim, itemizing everything they believe will cut.
They also provide peace of mind, knowing that your claim is being filed by a licensed tax attorney who will ensure complete legal compliance.
Lastly, they can also help set your company up right if and when you are audited by the IRS, ensuring the process runs smoothly.
At first, for beverage producers and for beverage manufacturing in general, you might think they may seem like unexpected places for R&D.
But if you think about it, a lot is going on behind the scenes that may qualify.
The development of new drinks often involves a lot of experimenting, tinkering with the formula, and overcoming new technical challenges.
Things like improving the drink's environmental sustainability and health factors can also come into play.
Here are 3 concrete examples of activities a brewery might do that qualify for the R&D credit:
The IRS uses two primary methods for calculating the R&D tax credit: the traditional and the Alternative Simplified Credit (ASC) method.
The approach you should choose depends on the calculation method that best suits a company’s financial situation and R&D spending patterns.
Generally, breweries can anticipate recovering approximately 7% to 10% of their R&D expenditures through these tax credits.
For instance, a brewery spending $200,000 on qualifying R&D activities could see tax credits ranging from $14,000 to $20,000.
The extent and nature of a brewery's qualifying research and development activities determine its financial benefit from the R&D tax incentives for breweries.
The final amount can vary widely, influenced by the scope of the projects undertaken, the costs involved in experimentation and development, and how much the brewery's practices adhere to the letter of the tax credit law.
Regardless, you can see why these are lucrative, making the R&D tax credit for breweries worth looking into for even small craft breweries.
You can claim R&D Tax Credits for the last 3 tax years. If your company has missed out, you still have a chance to amend past returns and get the credit. This could lead to significant savings on already completed research and development initiatives.
Yes, similar to breweries, wineries and distilleries can also claim the R&D tax credit.
Wineries are just as eligible as breweries as long as they meet the same kinds of qualifying activities.
However, many wineries don’t experiment with the fermentation process in the same way as distilleries and craft breweries and, therefore, may not be eligible as often.
You should document all R&D-related expenses. Here’s how:
Not all activities of a brewery constitute R&D under the tax credit guidelines. Examples of non-qualifying activities include:
At RevenueSafe, we explore a business’s R&D methods and expenses to ensure a compliant claim of maximum value. Our process is simple, straightforward, and easy to use. So don’t wait, take the opportunity now to save money for your business.