Many agricultural and horticultural businesses are unaware that their governments offer generous research and development (R&D) incentive programs, or they may believe that such programs do not apply to them. Even those that are aware often fail to capture the full extent of R&D tax credits to which they are entitled. If you think you need to have a laboratory and a PhD to be conducting qualified activities as defined by the Internal Revenue Code, think again.
Within this ever-evolving industry, getting the most out of tax incentives is an important step to re-investing in your business potential and promoting further innovative growth. With the R&D Tax Credit, eligible companies can claim the Federal tax incentive for their qualified day-to-day operations to offset their annual income and/or payroll tax liability on a dollar-for-dollar basis. Many states also offer their exclusive version of the R&D Tax Credit which can be claimed in conjunction with the Federal one to further reclaim qualified R&D expenses.
Research Tax Credit
The Research & Experimentation Tax Credit is designed to incentivize companies to invest in people and technology that can lead to growth in revenues and profitability, as well as to promote job retention and expansion. These credits focus on qualified wages, supply costs, and contract research. Research activities conducted by companies must meet the 4-Part Test to qualify for the R&D Tax Credit.
- New or improved business component (e.g., product, process, computer software, technique, etc.) for which the activity’s purpose is to develop or improve upon it in terms of function, performance, reliability or quality.
- The research activity is intent on eliminating technical uncertainty when developing or improving upon a business component.
- A systematic process of experimentation must be followed to eliminate the technical uncertainty through the evaluation of alternative solutions. This includes simulations, modelling, laboratory experiments, field studies, or pilot model prototyping.
- The research activity must be technological in nature and be based on the principles of a hard science such as agricultural engineering, agronomy, or chemistry.
Examples of Qualifying Research Activities
Examples of the type of projects which are likely to qualify for R&D Tax Credits within the agricultural and farming sector include the following:
- Developing new crop varietals where there is uncertainty of success in specific growing conditions.
- Developing and implementing unique process modifications to improve labor efficiency or crop performance.
- Development of new machinery and processes for soil erosion and water retention.
- Waste reduction processes or techniques to minimize the environmental impact (e.g., reduce water pollution) and improve farmland biodiversity.
- Development of new techniques to grow crops to increase quality.
- Conducting experiments with organic farming / biological practices to improve crop performance.
- Designing or implementation automated or PLC controlled picking systems or irrigation systems.
- Development of crop protection products to reduce disease and improve pest control.
- Hybridization or development of new strains of crops, plants, or livestock.
- Implementation of precision farming techniques in attempt to increase yield and/or production efficiency.
The DST Advantage
DST’s technical team is comprised of engineers, with specific experience in agriculture and agronomy. Coupled with our legal and tax team, we can construct a solid claim based on engineering facts, supporting by legislation and regulations. Our team will explain the program in detail and explain how we can take you through the process of ensuring you maximize your legitimate Research Tax Credit claim.
Contact DST Advisory Group at 877-214-8920 for a no-charge assessment to confirm if your company can qualify for these credits.