R&D Tax Credits for the Pet Industry

R&D Tax Credits for the Pet Industry

Posted by Jeffrey Feingold on 10.29.18

The pet industry is a worldwide multi-million dollar industry and is continuing to grow every year because of new innovations and processes. Food, vet care, grooming products, as well as pet medicines and supplements are a daily expense for most families across the world. Approximately 65% of households in the United States have at least one pet in their family. The many large and small companies that develop and manufacture drugs and vaccines for pets are expected to generate $33 billion in sales by 2020. Companies are always trying to bring better products or processes to the market and the pet industry is brimming with opportunities to claim valuable Research and Development (R&D) tax credits. 

The R&D Tax Credit

The R&D tax credit was instituted by the federal government to stimulate the United States’ economy through innovation. The idea being that: by providing companies that were ready and willing to invest in improving their processes and developing new products with tax incentives, technology would progress and the nation would advance economically. In 2015, after many extensions on the temporary bills that would become the R&D credit, it was made permanent by the U.S. Congress and is now a dollar-for-dollar benefit against tax.  

Companies in the pet industry conduct research and development in their everyday activities, not realizing these tasks can qualify them for R&D tax credits from the IRS. Veterinarians creating a new process to administer medications, scientists finding better or more natural ingredients to increase immune systems or better animal joint health are just a few activities performed that can bring great tax benefits. 

Which Activities Qualify?

Many activities in the pet industry will qualify for the R&D tax saving credits, including but not limited to the lists below.

Food Products and Treats:

  • 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
  • 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
  • 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

Grooming Products and Skin Care:

  • Develop new or improved chemical product formulations
  • Develop and test new or improved packaging and packaging equipment
  • Generate prototypes and samples of new products for testing and validation
  • Develop new or improved distribution methods

Pharmaceuticals and Supplements:

  • Drug research
  • Preclinical and discovery research for the development of new compounds
  • Clinical R&D
  • Quality assurance
  • Supply expenses linked directly to qualified research activities
  • Employee wages for in-house research expenses
  • Third-party contract research to supplement in-house activities for qualifying pharmaceutical research expenses
  • IT software programs to maintain and organize test or lab results

Find Out If Your Business Qualifies For These Tax Saving Credits

The activities and associated expenditures (derived mostly from employee time, consultant expenses and related R&D supplies) of a company can qualify for the R&D tax credit if the activities meet the requirements of 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. Elimination of Uncertainty – Activities must overcome some unknowns, such as uncertainty as to capability, optimal design, or optimal methodology. 
  4. Process of Experimentation – Experimentation can be demonstrated through prototypes, simulations, systematic trial and error, or other methods of evaluating alternatives to achieve a desired result.

Request a free assessment to determine qualifying R&D tax credit eligibility.

Opportunities to claim the Research and Development (R&D) tax credits for the pet industry are abundant. The experts at Tax Point Advisors can help you capture your full R&D tax credits for eligible activities and manage the documentation process.

Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with CPAs and their business clients who may qualify for R&D tax benefits. For more information, read our free e-book: The Business Owner's Guide to R&D Tax Credit Credits, contact us at (800) 260-4138, or please leave us a message below.

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