Key Takeaways
- R&D tax credits may apply to innovative agricultural activities, including field trials, feed testing, seed evaluations, and precision agriculture efforts.
- Qualifying expenses can include costs many farms already track, such as seed, fertilizer, chemicals, feed, veterinary inputs, wages, and agronomy services.
- Projects do not need to be successful to qualify; testing alternatives and documenting what did or did not work can still support an R&D credit claim.
Many agricultural businesses are surprised to learn that current operational activities fit within the research and development (R&D) credit rules. Federal and state R&D tax credits are not confined to scientific laboratories and may apply to practical innovation already happening in the fields, barns, feed programs, and operations.
What does R&D look like on a farm?
For most farms and agribusinesses, R&D is practical. It often involves identifying a challenge, testing different approaches, measuring results, and determining best practices.
Potential qualifying activities may include:
- Testing new seed hybrids, traits, or crop varieties
- Evaluating fertility programs or nutrient application strategies
- Comparing cover crop performance
- Using technology to improve production yield
- Developing or testing soil additives
- Refining feed formulations or animal health protocols
- Conducting side-by-side field trials
- Leveraging precision agriculture tools to evaluate outcomes
What expenses may qualify?
Commonly reviewed qualified costs may include seed, fertilizer, chemicals, feed, veterinary inputs, employee wages, and agronomy services.
Existing records such as yield maps, trial comparisons, performance metrics, and end-of-season discussion documents are often sufficient to help support an R&D credit claim.
Do projects have to be successful?
A project does not need to be successful to potentially qualify.
The R&D credit rewards innovation and experimentation, not just successful outcomes. In many cases, learning what doesn't work can be just as valuable as finding what does. Unsuccessful trials may still qualify if they evaluated alternatives and improve future decision-making.
Examples in the agricultural sector include:
- A seed company completed a one-year R&D study related to crop-growing techniques and realized more than $93,000 in federal credits and $48,000 in state credits.
- A pig farm completed a one-year R&D study on various feed trials and realized more than $365,000 in credits from over $3 million of qualified expenses.
- A cattle company completed a one-year R&D study involving feed trials and software development activities and realized more than $290,000 in federal credits and $180,000 in state credits from approximately $4.45 million of qualified expenses.
Next Steps for Agricultural R&D
Here are questions to consider when evaluating opportunities:
- Have you implemented new technologies or production methods to improve yield?
- Are you testing new seed hybrids, traits, or crop varieties?
- Are you evaluating fertility programs or nutrient application strategies?
- Have you compared cover crop performance and measured results?
- Are you currently developing or testing soil additives to improve crop performance?
- Are you working to improve animal growth performance?
- Are you enhancing animal health protocols, vaccination strategies, or treatment approaches?
- Will you be conducting side-by-side field trials?
- Have you used precision agriculture tools to evaluate and compare outcomes?
Any of the above could lead to further conversations and a possible R&D tax credit.
At Eide Bailly, our R&D Tax Credits & Incentives team helps agricultural businesses identify qualifying activities, evaluate documentation, and maximize available federal and state tax incentives.
Not sure if you qualify? Take our R&D Tax Credit Assessment to see if your development efforts qualify for incentives.
Turn your innovation efforts into tax savings with the help of a trusted advisor.
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