Even without lab coats or patents, your company could qualify for powerful tax incentives if you know where to look.
RETHINKING WHAT QUALIFIES AS R&D
When business owners hear “R&D,” they often picture high-tech labs or pharmaceutical breakthroughs. But the reality is much broader and more accessible.
“Companies think they have to be in lab coats or developing pharmaceutical drugs to qualify,” shared Helen Han, director at downtown Los Angeles-based R&D Incentives Group (RDIG), a specialty firm focused on research and development tax credits. “But if you are investing in new or improved products or processes, even if they already exist in the market but are new to you, you might qualify.”
That insight is especially valuable for food and beverage companies, which often innovate behind the scenes. From product development to packaging and scaling manufacturing processes, the work is there; it just needs to be documented and evaluated through the right lens.
HOW R&D SHOWS UP IN FOOD AND BEVERAGE
“Food science is a great example,” said Brian Haneline, technical director at RDIG. “We have worked with small companies that started out of someone’s home kitchen and evolved into full-scale operations. They were shocked to learn their experimentation and test batches could qualify for R&D credits.”
In food and beverage, R&D activities might include:
- Developing new flavor formulations
- Testing shelf stability or ingredient substitutions
- Designing more efficient or automated manufacturing processes
- Scaling up small-batch recipes for commercial production
These activities often go undocumented, especially in smaller businesses where founders wear multiple hats.
“They think, ‘We do not track hours like a Fortune 500 company, so we must not qualify,’” Helen noted. “But the IRS allows for more flexible documentation in small to mid-size businesses; things like emails, test runs, meeting notes or even oral interviews.”
THE DOCUMENTATION CHALLENGE
R&D tax credits are valuable, but they also come with scrutiny. And companies that are innovating can run into difficulties proving it.
“The biggest hurdle is substantiation,” Brian said. “Founders are busy launching products or managing operations, not creating time logs and formal documentation. But that is where working with R&D experts makes all the difference.”
Organizations like RDIG offer engineers, attorneys and technical writers who help companies gather and present R&D activity in a way that satisfies IRS requirements.
“We often step in and translate business activity into tax credit opportunity,” Helen explained. “Our job is to help companies tell their story clearly that makes sense to the IRS with data to back it up.”
NEW TAX LAW CHANGES
A major pain point in recent years had been Section 174, which temporarily required companies to amortize R&D expenses over several years rather than expense them fully.
“That reduced the cash flow benefit and caused some businesses to pull back on innovation,” Brian explained.
However, the One Big Beautiful Bill Act (OBBBA) repeals this requirement and also restores immediate expensing of domestic R&D costs. This means, effective for tax years beginning after Dec. 31, 2024, domestic R&D expenditures can be fully expensed in the year incurred. Additionally, small businesses (companies with average gross receipts of less than or equal to $31 million over the past three years) can elect retroactive immediate expensing for such domestic R&D costs previously amortized for tax years 2022 through 2024. Note that these companies must file amended returns within one year of the OBBBA’s enactment to claim these refunds.
“We are expecting to see a surge in R&D credit claims again,” Brian added. “Companies should start preparing now to take full advantage of this powerful tax opportunity.”
FINAL TAKEAWAYS: WHAT BUSINESSES SHOULD KNOW ABOUT R&D TAX CREDITS
- You do not need to be in tech or pharma to qualify. Food and beverage companies often qualify through product innovation, process improvements or packaging trials. In fact, several other industries qualify, including manufacturing, technical services, digital media and software.
- Documentation is essential but flexible. Even small businesses without formal systems can claim credits with the right guidance.
- Expert support matters. The R&D credit is a highly technical area. Working with the right specialists minimizes risk and maximizes return and makes sure business leaders are informed of new regulations and compliance that make this even more complex.
- Now is the time to act. With the passing of IRS changes under the OBBBA, businesses should evaluate their eligibility to go back and claim their timely return or take advantage of this going forward based on the company’s specific set of facts and circumstances.
GHJ believes in connecting clients to the right expertise — whether that means bringing in technical collaborators like RDIG or building a tailored team to solve your most complex business challenges. To learn more about how GHJ supports the food and beverage industry, contact the team here.
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