How dessert companies can generate current cash from past investments.
With constant changes and ever demanding trends within the dessert industry, companies, bakers, chocolatiers, pastry chefs, and other professionals are constantly innovating to stay competitive and ahead of the field. Whether you have been investing in products and processes to offer non-GMO, organic, gluten-free, or other options, or to develop new or improved packaging, you may be eligible for a valuable tax credit that can make your investments even sweeter.
This credit, known as the research and development (R&D) tax credit or the research credit, can enable your company to reduce its effective tax rate, increase its cash flow, hire employees, and finance further R&D and other business objectives. Companies attempting to develop new or improved recipes, formulas, products, manufacturing processes, or software can be eligible for federal and state R&D tax credits and incentives.
Examples of activities that qualify for the credit include developing new textures, appearances, and health benefits of desserts, designing and developing new or improved flavors or products (such as gluten-free cupcakes, trans-fat-free doughnuts, or allergen-free chocolates), producing sample batches in a test kitchen, and developing sustainable packaging. Other activities include developing new granulation, mixing, or manufacturing process improvements to increase speed or yield, reduce waste, or improve quality or safety as well as developing new tools, machinery, and kitchen equipment.
If you have any of the following kinds of employees or contractors, you’re likely eligible for the research credit:
- Food Scientists;
- Process Engineers;
- Packaging Engineers; or
- Analytical Chemists.
It doesn’t matter how big or small your business is—both small mom-and-pop stores and large established companies can claim the credit. It’s also important to note that your development efforts do not have to succeed to qualify; attempting to develop new or improved products, processes, formulas, or techniques is enough.
Although calculating and supporting the research credit requires resources, time, and expertise, it may be worthwhile since it can provide valuable benefits. In 2012, the most recent reported IRS numbers, federal R&D credit claims were over $10.8 billion. With several recent taxpayer-friendly developments around the credit, now is as good a time as any to consider whether you’re missing out on these benefits.
The credit is incremental in nature, with two different ways of calculating the credit. The Regular method can sometimes require information all the way back from 1984. However, the Alternative Simplified Credit method only requires the current and three prior tax years. A recent rule now generally allows the ASC method on an amended tax return, so claiming credits you’ve missed in the past may now be simpler to do.
If you are or have been investing in some of the activities mentioned above, you should consult a tax professional to determine whether you are eligible for the R&D tax credit and can generate cash to develop even more innovative and delicious dessert products.