Research and Development Tax Credits for the Food Processing Industry

Research and Development Tax Credits for the Food Processing Industry

Posted by Jeffrey Feingold on 08.20.18

Research and development strategies are used everyday to develop new products related to food safety, cost reduction, organic products, and dietary guidelines in the food processing industry. Engineers, dieticians, nutritionists and scientists all work in the food processing industry and have the responsibilities of developing products that satisfy ever-evolving consumer preferences and trends. Their solution lies in innovative technologies and food products aimed at quality with efficiency. Many companies in the food processing industry do not realize that they are eligible for the research and development tax credit. The R&D credit is accessible to any food processing business that attempts to make improvements to their current products or processes and/or creates new products or processes. You do not need to be a large company to qualify for the credit.  

The R&D credit is often overlooked by businesses, despite the significant cash benefits it can offer with a dollar-for-dollar benefit-against-tax.

Research activities occur everyday for the development of new food product processes, such as batching sequences, experiments in cooking temperatures and mixing times. Many of the activities particularly in the food processing industry that qualify for the credits are considered routine operations and the R&D tax credits are often missed. In fact, less than one third of businesses that qualify for the credit will apply for it.  The advantages of the credits can be remarkable and are waiting to be claimed by companies in the food processing industry.

Here are some examples of qualifying food processing activitiesthat may qualify as research;

  • Developing new packaging designs for better functionality or improved shelf life
  • Developing new food product recipes
  • Improving existing food product formulations to achieve nutritional requirements
  • Testing product formulations to specific analytical tests for PH levels, Acid Content, Sodium Content etc.
  • Producing prototype product samples for testing and validation of new recipes
  • Developing new production processes to improve efficiency, lead time, man power and waste
  • Developing new technology and equipment for the production and testing of food products
  • Improving efficiency for existing production processes
  • Conducting sensory evaluations of prototype samples
  • Microbiological test procedures for the examination of food products

Find Out If Your Business Qualifies For These Tax Saving Credits

Potentially eligible costs for R&D tax credits include wages, cost of supplies, cost of testing, and contract research expenses. The activities and associated expenditures of a food processing company can qualify for the R&D tax credit if the activities meet the following 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.

The R&D tax credit can be a lucrative incentive for businesses in the food processing industry. A qualified R&D credit professional can conduct a thorough R&D tax credit study to assess which activities meet the IRS’ four-part test to qualify for the credits.

Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with businesses that may qualify for R&D tax benefits. For more information, call us at 800-260-4138 or please leave us a message below.

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