William Kuhlman is a tax partner and is Marcum’s Research and Development Tax Credits leader. Mr. Kuhlman has spent over 20 years consulting with middle-market U.S. corporations and was instrumental in the success of national, regional and boutique R&D tax consulting practices. Mr. Kuhlman has 30 years of progressive tax
experience and more than 20 years of R&D tax credit specialization.
David A. Oksenhorn is a senior manager in Accounting Services at Marcum LLP in Long Island. He is an active member of Marcum's Food and Beverage Services Group. In his 13 years of experience, David has advised clients in manufacturing, professional services, and other various industries. He primarily works with closely-held businesses, providing financial statement reporting, tax compliance and planning, and business consulting services.
This was a year of challenges that significantly hurt the brewery industry. Breweries tried different tactics to stay afloat, including relying heavily upon grants and loans.
One year later, we are in a land of acronyms that have helped in the economic recovery of the industry, such as PPP (Paycheck Protection Program), ERTC (Employee Retention Credit), EIDL (Economic Injury Disaster Loan), and most recently, RRF (Restaurant Revitalization Fund). But you should not forget about one of the more powerful and effective acronyms – R&D – as in the Research and Development (R&D) tax credit.
The R&D tax credit is a federal tax subsidy available to craft brewers that invest in product development, formulations, recipes, techniques, and manufacturing processes. Brewers may not realize that every day brewing activities may qualify, with potential savings of up to 10% of every eligible dollar invested, either on a one-for-one basis in federal tax reduction or payroll tax expense rebates.
R&D credits generated by small to medium-sized businesses in tax years beginning on or after January 1, 2016, can offset Alternative Minimum Tax (AMT) liabilities. A small or medium-sized qualifying entity is defined as a business with $50 million or less in gross receipts, determined by taking an average of the prior three years’ receipts. Credits may reduce AMT in the prior year or carry forward for up to 20 years.
The R&D credit may also be applied against the employer’s OASDI (Social Security) portion of payroll taxes, for “qualified” small businesses. A qualified small business is defined as one with less than $5 million in annual gross receipts for the tax year and no gross receipts for any tax year before the 5- year period ending with the tax year.
This means qualifying breweries can take advantage of a payroll tax credit to receive immediate benefit even if they are not profitable. This is a huge win and could result in significant cash savings.
The payroll credit is limited to $250,000 per year for up to five years, and any unused portion can be carried forward to future years. The tax credit may also be claimed if the business uses a certified Professional Employer Organization (PEO).
The credit is calculated for three types of qualifying research expenditures incurred in conducting research: wages and supplies used in the conduct of qualified research activities, and a percentage (65%) of third-party contract research.
Breweries should evaluate investments for R&D credit qualification, since it permanently reduces federal effective tax rates and may provide the opportunity to monetize the tax credit sooner than was allowed in the past.
In a land of economic acronyms, the R&D tax credit is king. #thinknydrinkny
