Tax season is always a complex, hectic time of year, but with the right tax planning strategy, it can also be rewarding. Businesses in the food and beverage industry in particular have the opportunity to maximize their savings and earn lucrative returns through several underutilized tax benefits and filing strategies.
Our national tax experts will walk you through our top tax tips for food industry professionals and help you make the most of this tax season.
R&D Tax Credits
A common misconception about research and development (R&D) tax credits is that they primarily apply to the technology, pharmaceutical, and scientific industries. In truth, any industry can claim R&D tax credits, provided they perform qualifying research and document their process.
What are R&D Tax Credits?
R&D tax credits incentivize businesses to improve their products, processes, or software through innovation and research. The credit reimburses companies for resource and activity expenses utilized during their research. In the past, the credit has required a business’s innovation to be unique to their industry in order to qualify; now, however, the research only needs to be unique to the company itself.
While R&D tax credits do not solely apply to the scientific and technical industries, the research must be conducted and documented in a methodical, systematic way. Our national tax experts have over 20 years of combined experience with helping companies claim R&D credits, and we provide reliable documentation to help you save every dollar your research has earned.
Find out if your project qualifies with the R&D Tax Credit 4 Part Test:
- Permitted Purpose: The research activities are done to improve the quality, function, or reliability of a process or product.
- Technological Uncertainty: The activities must identify information to remove ambiguity in the development or improvement of a production process.
- Systematic Process: The activities must involve stimulation, logical trial and error, assessing alternatives, and refining hypotheses.
- Technological in Nature: The research done relies solely on physical sciences, biological sciences, computer sciences, or engineering.
R&D Tax Credits: Food Industry
When it comes to R&D tax credits, food industry professionals have a wealth of research opportunities that could potentially qualify. The industry is constantly evolving, from innovations in plant-based alternatives to changing health and safety regulations, and with every shift comes an opportunity to innovate. Structure your experimentation to align with the R&D Tax Credit 4 Part Test and be sure to document your research, or contact a national tax expert to make sure your claim is successful.
Qualifying research activities common in the food and beverage industry include:
- Improving the texture, taste, shelf life, or nutritional value of the food or drink
- Redesigning processes to comply with new federal or state regulations
- Improving machinery and equipment to improve the safe handling of food
- Reducing materials or using more environmentally friendly materials in packaging
- Executing more energy-efficient processes that save water, fuel, and utilities
Cost Segregation Study
In addition to R&D tax credits, food industry professionals can save significant amounts of money on property taxes with a cost segregation study. These studies are a powerful yet underutilized method to lower your overall tax burden.
What is a Cost Segregation Study?
Cost segregation studies maximize federal property tax depreciation deductions. Property loses value as it ages, and this reduction in value is referred to as depreciation. Property owners can claim a tax deduction for the property’s depreciation expense, so identifying all areas of the depreciated property is a valuable tax planning strategy.
Cost segregation studies identify all areas of a property that qualify for higher depreciation — and a larger tax deduction. Without this study, depreciation is based on the value of the building alone.
With a cost segregation study, property is divided into four categories:
- Land: This category includes only the land itself, not any improvements or structural additions to the land. It is the only category that does not depreciate.
- The Building: The building includes the structure and its components, such as the building’s roof. Commercial buildings depreciate over 39 years, and residential buildings depreciate over 27.5 years.
- Land Improvements: Land improvements refer to items outside of the building such as fences and parking lots. They depreciate over 15 years.
- Personal Property: Personal property includes items such as carpeting and fixtures. It depreciates over five to seven years.
Cost Segregation Studies for the Food and Beverage Industry
Restaurant buildings encompass a broad range of elements that could qualify as personal property or land improvements under a cost segregation study. As a rule of thumb, personal property, which depreciates over 5-7 years, includes non-load-bearing items that are not integrated with building elements like plumbing or wiring. Most items you have a hand in choosing fall into this category.
Personal property commonly found in restaurant buildings includes:
- Carpeting, vinyl, and epoxy flooring
- Canopies and awnings
- Kitchen equipment gas systems
- Sound systems
- Equipment-related electrical and plumbing connections
- Decorative light fixtures
- Kitchen storage and preparation equipment
Restaurant properties also tend to have elements that qualify as land improvements, which depreciate over 15 years. Elements like parking lots, freestanding outdoor light fixtures, landscaping, and fencing could qualify for this depreciation rate.
Employee Retention Credit (ERC)
Perhaps the most well-known item on our list, the Employee Retention Credit (ERC) has received a lot of national attention since 2020. But despite its popularity, misconceptions about eligibility requirements hold back many qualifying business owners, including many in the food and beverage industry, from claiming the credit.
What is the ERC?
The Employee Retention Credit was designed to keep workers employed through the duration of the pandemic. Originally passed in March 2020 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, this refundable credit allows eligible employers to claim the credit against qualified wages and health plan expenses paid to employees. It can earn employers up to $26,000 per employee.
Employee Retention Credit: Food and Beverage Industry
The food and beverage industry was rattled by the pandemic and resulting government shutdown orders in 2020 and 2021, and the Employee Retention Credit was designed specifically to help businesses just like this get back on their feet.
A common misconception about the ERC is that businesses had to have a complete shutdown of operations to claim the credit. In truth, a complete shutdown is not required — businesses that experienced a partial shutdown or a significant decline in gross receipts are also eligible. This means that restaurants that transitioned to takeout-only can claim the ERC.
Additionally, business owners frequently assume that PPP loan recipients are not eligible for the credit. While this was true under the initial version of the CARES Act, the Consolidated Appropriations Act changed the provision. Now, employers can’t use the same wages for both financial relief options, but PPP loan recipients are not prohibited from the ERC.
It’s not too late to claim the credit if you haven’t done so yet. Employers have up to three years to retroactively claim the credit towards wages paid from March 13, 2020, through Sept. 30, 2021.
Contact a National Tax Expert
Whether you’re interested in the ERC, cost segregation studies, or R&D tax credits, food industry professionals can ensure they’ll maximize their savings this tax season with the help of a national tax expert. Reach out to us today — we’ll answer questions about the R&D Tax Credit 4 Part Test, help you navigate various tax benefits for the food and beverage industry, and advise you on other money-saving tax benefits during your free benefits assessment.