The Research and Development (R&D) tax credit has been a lucrative tax credit for a number of industries for many decades, oftentimes producing federal and state credits in excess of 10 cents of every dollar spent on R&D. Admittedly, restaurants are not the first industry to come to mind when thinking about the credit. But should they be?
First: How to Qualify
To qualify for the credit, the business must meet all four parts of a four-part test, which requires the business to have activities that:
- Are intended to develop a new or improved business component (i.e., a product, process, software, technique, invention, or formula)
- Are done through a process of experimentation
- Fundamentally rely on the physical, biological, or computer sciences (yes, food sciences count!)
- Eliminate technical uncertainty
Where Do Restaurants Come Into Play?
There are three major areas where restaurants often find themselves having significant R&D expenditures that would make an R&D credit lucrative.
- New or improved product: This one is very simple to identify. New menu items and new beverages are great candidates for capturing R&D-eligible costs. Keep in mind that experimentation within the food sciences is a part of the development effort. Don’t forget about wineries, breweries, and distilleries on this one!
- New or improved processes: Finding new techniques to create a business component and show measurable improvement qualifies. This happens every day at restaurants!
- Software Development: Has your company developed or added new features to its app lately? If so, it likely required computer engineering efforts that qualify for the R&D credit. This is oftentimes the most overlooked activity that qualifies for the R&D tax credit for restaurants.
How Can GBQ Help?
GBQ can help by providing your company with an R&D study that meets IRS documentation requirements for claiming an R&D credit. To discuss this information in more detail or to learn more, please contact Jeff Waldeck or Leah Rogers.
Article written by:
Jeff Waldeck, CPA
Director, Tax & Business Advisory Services