Alcoholic Beverages R&D Tax Credits

The alcoholic beverage industry has a long history of highly guarded recipes, processes, and techniques. However, a competitive market is forcing companies to innovate to stay afloat.

There are 20,000 wineries and breweries in the US. Unfortunately, many are unaware that developing new or improving old products or processes can result in R&D tax credits. This article outlines key information that helps businesses benefit from this opportunity.

How Alcoholic Beverage Companies Qualify for Research and Development Tax Credits

There are numerous R&D activities involved in creating a new product, from concept, formula development (the recipe), and scale-up batching to full production. Even if your company isn’t working on new products but is looking to implement automation or investigate novel packaging options, those activities are still considered R&D, meaning they can be claimed as qualified research expenses (QREs) toward the R&D Tax Credit.

Aside from the federal credit, many states provide tax benefits for R&D investment. Companies in their early stages of development and startups with fewer than five years of income can use federal R&D tax credits to offset future payroll taxes. Startups can deduct $250,000 in payroll taxes each year.

Alcoholic beverage sectors like distilleries, hard seltzers, wineries, ready-to-drink cocktails, and craft breweries (ciders) have received large R&D tax incentives. That allowed them to reinvest in their personnel, infrastructure, and continuing innovation.

Qualifying Activities

Alcoholic beverage companies often don’t know that many operations they conduct regularly qualify for R&D credit. Specific examples of such activities include:

• Development of new product formulations to attain certain flavor, texture, and fragrance qualities

• Construction of specialized manufacturing machinery or procedures

• Process improvements for distillation and/or fermentation to enrich flavor or increase shelf life

• Automation of the manufacturing, bottling, or packaging processes

• Development of innovative techniques associated with distillation, purification, and filtration

• Test samples and prototype batches production

• Integration of cutting-edge technologies into wine cellars and storage facilities

Costs the R&D Tax Credit Covers

An average of 18.5% of total alcoholic beverage expenses typically qualify for the credit. That means companies can deduct costs for staff salaries, supplies and raw materials, computer rentals, and outside contractors incurred throughout the R&D process. So, you can cover wages for your in-house or third-party chemists, technicians, R&D managers, microbiologists, manufacturing managers, cellar masters, viticulturists, and more.

According to the law, businesses can amend prior-year tax returns (usually going back three years), providing more money in tax refunds. If you can’t utilize the R&D credits right away, qualifying small firms can carry the credits forward for up to 20 years to lower income taxes or use them to offset future payroll tax payments.

When You Need Expert Help

Not sure if your efforts to develop alcoholic beverages or products meet the requirements? Our research and development tax experts are working on a success-based pricing system allowing you to obtain R&D credits or refunds without upfront costs. To calculate your potential benefit, contact Endeavor Advisors today.