R&D Tax Credits for the Food Science Industry

R&D Tax Credits for the Food Science Industry

Posted by Jeffrey Feingold on 12.01.17

Consumer demands for fresher products made without artificial colors/flavors, preservatives, hydrogenated fats, or genetically modified ingredients (GMOs) have had a significant impact on the food science industry in recent years. These demands have made research and development a key factor in the productivity and growth of the food industry. The R&D tax credit available is a great incentive to any food science company developing new or improved products, processes or formulations.

The following are a few examples of activities that may qualify as Food Science research:

  • Developing new or improved food products, processes, or formulations
  • Improving a food product’s flavor, texture or shelf life
  • Producing trial batches in a test kitchen
  • Experimenting with substitution of ingredients such as low fat or organic ingredients that affect product consistency, quality, or texture
  • Improving food manufacturing processes to reduce waste or prevent the possibility of food borne illnesses
  • Developing packaging with improved shelf life, product quality and longevity
  • Incorporating newer materials and equipment in food processing and packaging to reduce waste or improve environmental impact
  • Evaluating new or improved food products and formulations to meet specified nutritional parameters
  • Developing new or improved processes to scale up production of food products and maintain desired characteristics of the product
  • Testing food products and formulations for desired characteristics

Businesses conducting food science research, such as the activities above, may qualify for and benefit from R&D tax credits.  The activities and associated expenditures of a company can qualify for the R&D tax credit if the activities meet the four-part test established by the IRS:

  1. Qualified Purpose – The purpose of the research must be to create a new or improved product, process, or formulation, resulting in increased performance, function, reliability or quality.
  2. Technological in Nature – The research must rely on the hard sciences, such as engineering, physics, chemistry, biology or computer science.
  3. Process of Experimentation – Experimentation can be demonstrated through test batches, simulations, systematic trial and error, or other methods of evaluating alternatives to achieve a desired result.
  4. Elimination of Uncertainty – Activities must overcome some unknowns, such as uncertainty as to capability, optimal design, or optimal methodology. 

The proper identification, quantification, and documentation for qualifying research activities and associated expenditures towards the R&D tax credit requires a thorough review of a company’s personnel and projects undertaken.  Companies engaging in the food sciences, such as food manufacturers and food processing companies, often expend time and resources on qualified research that enable taking advantage of the R&D tax credit.

Does Your Business Qualify for R&D Tax Credits?

If you think your food science company might be performing work that qualifies for the R&D tax credit, don’t let the potential tax savings go unclaimed. To learn more about the credit and how much you might save contact Tax Point Advisors at (800) 260-4138, or leave us a message below.

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