Posted by Jeffrey Feingold on 12.29.21

Valuable R&D Tax Credits Can Further Innovations in Agriculture

If you work in the agriculture industry, are you aware of valuable tax credits that may allow you to reinvest in your business?

For a long time, research and development (R&D) tax credits were mostly associated with large companies conducting research in software, manufacturing, pharmaceutical and high-tech companies. As a matter of fact, many activities associated with agriculture can and do qualify. When you stop to think about it, R&D is essential to driving technological change in agriculture, and many people working in the industry engage in R&D activities on a weekly basis—activities that could qualify for a significant tax credit.

Agricultural Advancements Call for Innovation

Consider the need for advancements in food science to provide food to a growing population. Technological innovation is essential to improving agricultural productivity. Agricultural companies also must find ways to continuously refine their processes to remain competitive.

Additionally, think about the challenges agricultural businesses must address—from disease control and changes in the climate to enhanced harvesting techniques and product development, every dollar matters in identifying, testing and executing solutions to farming challenges.

Qualifying for R&D Credits

The federal government implemented the Research and Experimentation tax credits in 1981 to create jobs and spur technology in the U.S. Known as R&D tax credits, the program was meant to be a temporary measure to give the economy a boost.

The R&D credit was extended by Congress more than a dozen times until the Pro­tecting Americans from Tax Hikes (PATH) Act of 2015 made the R&D tax credit permanent. Qualified research must meet the following four criteria:

• New or improved business component
• Technological in nature
• Elimination of uncertainty
• Process of experimentation

Watch this video: How to Qualify for R&D Tax Credits: The Four-Part Test

Whether it’s to experiment with a new process or invest in innovative new products, the agriculture industry is rich with opportunities to claim R&D tax credits for qualified activities, including:

• Improved processes to increase yield and production efficiency
• Development or experimentation with new feeds
• Testing and implementation of new solutions to farming challenges
• Experimentation to control the spread of diseases
• New or improved methods to transport food products
• Improvements to facilities to maintain environmental and safety efforts
• New or improved breeding techniques for livestock
• Evaluating feeding techniques to improve or increase livestock production
• Development of facility improvements for greater efficiencies
• Improving a facility for environmental, health and safety reasons
• Flavor development/ingredient formulations for food products
• Developing new or improved fertilizers, irrigation systems, soil development, etc.

Changes in AMT Benefit Eligible Small Businesses

In the past, small agricultural companies and farms could not qualify for the R&D tax credit because they were subject to the alternative minimum tax (AMT). The enactment of PATH now makes it possible for the R&D credit to offset AMT for eligible small businesses. Companies with $50 million and less in average annual gross receipts, based on the three preceding tax years, might be able to apply the R&D credit against the AMT.

Find Out if Your Activities Qualify

The R&D tax credit can be a lucrative incentive for agricultural businesses. Given the new permanent nature of the federal tax credit, now is the time to consider whether activities performed by your company qualify for major cash-saving tax credit opportunities. 

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.