Posted by Jeffrey Feingold on 03.22.23

The brewing industry (the making and selling of beer) is fertile ground for claiming the Research and Development (R&D) tax credit, especially with the relatively recent but rapid rise of the craft beer market. Craft beer is a hotbed of design and creation at present and will likely continue to be so, well into the future. All of the innovative pursuits related to crafting beer with various new flavor and aroma profiles, are exactly the types of ventures that the R&D credit is available for. Additionally, any kind of improvement in brewing processes or the origination of new products also qualify. Therefore, larger and more commercialized brewers are also able to qualify for the credit. 

Less than 33% of companies that qualify for the federal R&D tax credit actually utilize it!

Federal tax incentives for R&D are available to most breweries, though most don’t know it and are missing out on some serious benefits. Some states also provide additional funds, such as California, Texas and Florida. Less than one third of businesses that are eligible actually claim this credit. If you or your clients own a brewing business, you need to apply for these R&D tax credits. It is likely you are already conducting activities that would qualify for these benefits. 

Which Activities Qualify?

• Hopping techniques
• Hop varieties
• Yeast strains
• Fermentation processes
• Bottling or canning processes
• Bottle, bottle crown or can designs
• Keg filling or treatment techniques
• Ingredient processing techniques
• Water recycling or waste management processes
• Filtration methodologies
• Brewing or bottling equipment
• Product formulations
• Ingredient mixing methodologies
• Product prototype batches
• Preservative chemicals
• Product designs to ensure consistency
• Product designs to ensure shelf life or longevity
• Product ingredient mixtures for desired flavor or aroma profiles

The R&D Tax Credit

The R&D tax credit was essentially started back in 1981, on a limited basis, to help 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. These tax dollars theoretically pay for themselves as the U.S. continues to innovate and stay in the global race for the supreme economy. The credit is intended to reward risk and is available whether the project succeeds or not. Eligibility for the credit is verified by a four-part test as follows.

Find Out If Your Business Qualifies For These Tax Saving 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. Elimination of Uncertainty: You must demonstrate that you’ve attempted to eliminate uncertainty about the development or improvement of a product or process. In other words, something that has been changed solely for aesthetic purposes would not qualify.
2. Process of Experimentation: You must demonstrate - through modeling, simulation, systematic trial and error or other methods - that you’ve evaluated alternatives for achieving the desired result.
3. Technological in Nature(The Discovering Technological Information Test): The process of experimentation must rely on the hard sciences, such as engineering, physics, chemistry, biology or computer science.
4. Qualified Purpose(The Business Component Test): The purpose of the research must be to create a new or improved product or process, resulting in increased performance, function, reliability or quality.

The expenditures are derived mostly from employee time, consultant expenses and related R&D supplies. Proof of eligibility and calculation of the R&D tax credit is a rather complex process and requires a CPA with knowledge and experience with this kind of credit. Look no further for your solution…

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

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.