Many business owners in the brewery and distillery industries are leaving money on the table by not capturing valuable Research and Development credits they are entitled to under the current tax provisions.
The R&D credit is a valuable deduction designed to stimulate efforts for advancement of U.S. companies. The main benefit is at the federal taxation level, but there are certain state benefits depending on the company fact pattern. Determining and computing R&D credits is a complex process which includes several different elections. The credit is determined from several circumstances including employee time, consultant expenses and related R&D supplies.
To qualify for R&D credits taxpayers must meet specific criteria. Research and development activities must be technical in nature relying on the principals of engineering, physics, biology or computer science. Additionally, taxpayers must work on projects undertaken for the development of a new or improved aspect of their business. Processes, functions, products, quality increases and substantial cost reductions are included in permitted purposes.
Finally, the business activity you undertake must have an element of process experimentation since qualified research involves trial and error. The project must be designed to evaluate alternatives to achieve a result where the potential to achieve that result is initially uncertain.
To substantiate research and development credits, taxpayers should consult with their CPA regarding best practices for documenting and maintaining business records. https://www.camusocpa.com/contact/#/
Examples of brewery business activities eligible for R&D tax incentives include the following:
- Developing new or improved hopping techniques
- Developing new or improved hop varieties
- Developing new or improved yeast strains
- Developing new or improved fermentation processes
- Developing new or improved bottling or canning processes
- Developing new or improved bottle, bottle crown or can designs
- Developing new or improved keg filling or treatment techniques
- Developing new or improved ingredient processing techniques
- Developing new or improved water recycling or waste management processes
- Developing new or improved filtration methodologies
- Developing new or improved brewing or bottling equipment
- Developing new or improved product formulations
- Developing new or improved ingredient mixing methodologies
- Developing new or improved product prototype batches
- Developing new or improved preservative chemicals
- Testing of new or improved product designs to ensure consistency
- Testing of new or improved product designs to ensure shelf life
- Testing of product ingredient mixtures for desired flavor or aroma profiles
Bonus depreciation, Section 179, FICA tip credits, cost segregations, and professional engineering studies are important tax planning opportunities that can be used in addition to R&D credits to minimize taxes and maximize cash flow.
Camuso CPA PLLC leverages the most cutting-edge technology, industry expertise and a deep network of colleagues to empower our clients with valuable tax incentives to incorporate into advanced tax planning strategies and investment portfolios that accelerate cash flows and growth.
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