Federal and state research and development (R&D) tax credits are available to breweries throughout the country.
Happy hour certainly wouldn’t be happy without skillful brewmasters. These wizards of water, grain, hops, and yeast craft scintillating new flavors. When brewmasters perfect their craft, they can bring people together over a cold pint. While many aspiring brewers dream of starting their own brewery, the cost of such an operation can be daunting. Luckily, R&D tax credits for breweries can make those dreams come true. Keep reading to discover how to apply for a federal R&D tax credit and if your home state offers an R&D tax credit program too.
Is there a Federal R&D Tаx Credit for Breweries?
According to the Tax Foundation, R&D tax credits encourage companies to spend more money on R&D to increase competition and growth. Since the federal government wants to keep the economy strong in the US, breweries are welcome to apply for this credit. Federal R&D tax credits are a permanent feature in the US tax code, so every year you come up with new brews or design a better distillery system, you could receive 7-10% of your qualified research expenditures (QREs) back as a credit.
If you’ve never heard of the federal R&D tax credit before, here’s how it can help your brewery:
- Qualifying start-ups can reduce payroll taxes with the credit
- Qualifying companies can use the credit to offset business income taxes
- Companies can carry the credit forward 20 years
The federal R&D tax credit is a vital resource for new and mature breweries. With it, you can launch your dream project to the next level or keep your business competitive. Of course, there are requirements you’ll need to meet in order to qualify for this resource.
Federal R&D Tax Credit Requirements
Before you can apply for the credit, you must ascertain if your brewery has:
- Developed a new product/process and/or improved upon existing functionality
- Encountered a level of uncertainty in the development process
- Put into practice a process of experimentation to eliminate uncertainty
- Conducted experimentation that relied on either engineering, biological, physical, or computer science
- Employed all or a portion of your workers within the United States
How are R&D Tаx Credits Calculated?
In order to get your credit, you’ll need to accurately list your QREs. These items are strictly defined as:
- The salaries of employees who conduct R&D full or part-time
- The cost of employing 3rd party contractors in the US
- The cost of disposable supplies bought solely for R&D purposes
To get an estimate of what your federal credit could be, use this free R&D tax credit calculator. After determining how much your credit could be, you’ll need to learn how you can use the credit. For example, if your brewery is under five years old and making less than $5 million in revenue, you can directly reduce the social security portion of your payroll tax. Now, if your brewery is over five years old or making more than $5 million, you can use the credit to offset your business income tax.
Of course, if you live in a state with an R&D tax credit program for breweries, you could receive even more benefits.
Which States Have an R&D Tax Credit Program?
Many states offer tax credit programs to boost local economies. With R&D tax credits in California, Pennsylvania, and other states, there are quite a few opportunities for breweries across the country to get creative with brews. Unfortunately, if you live in any of the states listed below, you’ll only be able to apply for the federal credit:
- Alabama
- Alaska
- Mississippi
- Montana
- Nevada
- North Carolina
- Oklahoma
- Oregon
- South Dakota
- Tennessee
- Washington
- West Virginia
- Wyoming
While these states don’t currently offer an R&D tax credit program, you can always petition your elected officials to instate one. Remember, the federal tax credit program is also available to breweries no matter what state you live in.
R&D Tax Credits for Breweries: What You Need to Know
Taking advantage of R&D tax credits is a must for breweries. Offered by the federal government and most states, this credit empowers your brewery to be innovative and remain competitive. With a tax credit expert’s assistance, you could receive 7-10% of your QREs as a credit and reduce your tax burden. The federal R&D tax credit can even be carried forward 20 years. Don’t wait to get the credit you deserve. Contact us at Bowers R&D today.