The food industry is not typically viewed as a field that performs research and development (R&D). However, the food industry constantly conducts R&D when creating innovations to improve their products, and food industry companies can utilize many day-to-day activities to claim R&D tax credits. Activities must fulfill the IRS’ four-part test criteria, requiring activities to be technical, eliminate uncertainty, use an experimental process, and intended to improve a business component.
Making products healthier
Making food and beverages healthier for consumers is one of the ways food companies can qualify for R&D tax credits. Taking actions such as reducing sodium and sugar content is likely to qualify for tax credits. Creating gluten-free or organic varieties is another way for organizations to incorporate qualifying research activities (QRA) into their credit claim.
Testing ingredient combinations for a desired flavor or aroma
Testing ingredients meets the criteria for a QRA as it involves a process of experimentation and attempts to eliminate uncertainty surrounding taste and aroma. Creating new flavors and scents requires food scientists to experiment with multiple combinations of chemicals, natural extracts, and reaction products. After creating flavors, taste testers must determine their viability for consumers.
Redesigning packaging
Packaging is necessary to prevent food from getting damaged while ensuring it remains fresh while being shipped to stores. Companies can create environmentally friendly packaging by making it biodegradable and recyclable while using fewer resources to develop it. Moreover, organizations can redesign packaging to improve a product’s shelf life or be reusable.
Improving preservatives
Sometimes, preservatives are necessary to extend a product’s shelf life, especially if it spoils quickly or takes a long time to get from the manufacturer to the consumer. Food organizations can choose healthier alternatives to conventional preservatives such as vinegar, rosemary extract, and celery juice. Ascorbic acid is a naturally derived compound that provides the same vitamin activity as vitamin C and can be used in many products, including jams, bread, and meats.
Making food production more efficient
Food manufacturers can incorporate time and money-saving tactics to improve food production. Methods to make food production more efficient include tracking the production process, evaluating water and electricity usage, and keeping up with machine maintenance. If an organization notices areas of improvement, it can introduce machinery designed to be more energy efficient.
There are many more actions food industry companies can take to include QRAs in their R&D tax credit claims. However, claiming R&D tax credits can be complex and time-consuming for small businesses. MainStreet does the hard work of searching through credits and matching them with your company. Reach out to us to start saving money today!