Research and development are a natural part of business for dairy producers — now they can get a tax credit for it.
The research and development (R&D) tax credit has been in the tax code since the 1980s. Many industries have taken advantage of this incentive to help defray the costs of innovation; however, a majority of operations in the agriculture industry, including dairy, couldn’t use the credit. In 2016, many of these limitations were removed, giving agribusinesses the opportunity to claim eligible activities.
Dairy research or innovation activities that qualify
You don’t need a science laboratory filled with test tubes in order to qualify for this credit. In fact, many of the practices that producers have been experimenting with and developing meet the requirements. Eligible activities may include:
- Experimenting with disease control methods
- Developing or improving breeding practices to reduce stressors on fresh cows
- Systematic research aimed at improving the health of the herd
- Genetics research, hormones, and growth formulas
- Feed and supplement experimentation (brown midrib silage and bi-products)
- Experiments with feeding schedules or frequency
- Experimenting with equipment (like collars or chips) to improve breeding or raising of livestock
- Processing manure for uses other than fertilizer on fields
- Exploring a unique bedding process
- Developing new milking techniques to increase milk production and lower somatic cell count
- Developing or experimenting with automation in feeding or milking
- Improving or developing odor control treatment methods
- Controlling mold or mycotoxins to avoid antibiotic residue in milk
- Experimenting with the optimization and utilization of dairy pastures
Changing with consumer preferences
The dairy industry is facing challenging times as consumer preferences change. Many consumers no longer want to purchase products from cows treated with growth hormones. Adapting to consumer preferences means that dairy farmers may have to find alternative methods to increase milk production. The R&D credit supports farmers who are experimenting with innovative alternatives to respond to consumers and remain competitive.
How we can help
Many farmers think they need a science laboratory filled with test tubes in order to qualify for this credit which isn’t true. Qualifications for and documentation of research processes vary, and you need to know if your process qualifies to claim the credit. The IRS is providing a three-year lookback window to amend returns so dairy producers can take advantage of this credit. The credit can also be carried forward in years that you don’t have taxable income CliftonLarsonAllen (CLA) has experienced R&D credit professionals who can help you explore the activities you may be doing now to see if they qualify.