As we approach year-end, here are some important reminders and refreshers for breweries related to the federal research and experimental (R&E) tax credit.
R&E Tax Credit Refresher
The R&E 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 everyday brewing activities may qualify, with potential savings of up to 10% on every eligible dollar invested, either by reducing the federal tax liability or payroll tax expenses.
As a result of the Tax Cuts and Jobs Act, effective Jan. 1, 2022, companies were required to capitalize domestic R&E expenses (e.g., R&E allocated wages, supplies, and third-party contractor expenses). While this still allowed taxpayers to claim the R&E tax credit, it significantly increased taxpayer tax liabilities in the short term as domestic R&E expenses were no longer immediately deductible but instead were required to be amortized over five years, with the first year being a half-year deduction.
Sweet Relief for Brewers
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, allowing immediate deductibility of R&E expenses rather than five-year amortization for domestic R&E beginning after Dec. 31, 2024 (foreign R&E expenses remained subject to 15-year amortization rules). Businesses with annual gross receipts of $31 million or less are allowed to apply this change retroactively for tax years beginning after Dec. 31, 2021. This means businesses could amend returns and potentially get refunds. Taxpayers with domestic R&E expenses incurred after Dec. 31, 2021, and before Jan. 1, 2025, can elect to accelerate the remaining deductions over a one or two-year period.
This bill sweetens the R&E credit by restoring immediate deductions. In addition, there is still availability for qualified “small businesses” to elect to take the R&E credit against the employer-paid portion of FICA and Medicare payroll taxes. 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 five years ending with the tax year.
This means qualifying breweries can take advantage of a payroll tax credit to receive an 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 $500,000 per year for up to five years, and any unused portion can be carried forward in future years. The tax credit may also be claimed if the business uses a certified professional employer organization (PEO).
What Brewers Should Do Now
Breweries should evaluate investments for R&E credit qualification, as they permanently reduce federal effective tax rates and may also provide the opportunity to immediately monetize the tax credit through a payroll tax credit for eligible breweries.
Want to make the most of R&E tax savings for your brewery? Connect with an F&B advisor to explore your options and boost your bottom line.
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