How Small Farmers Can Fetch Savings from R&D Tax Credits

Written by Corporate Tax Incentives. Updated Aug 7, 2019.

RD_DogsDog lovers have always been a pack divided: small dog or big. People in the big pack will tell you ‘family-size’ dogs are more trainable, intimidating (except for labs), calmer (except for labs), they can go for real walks, and they’re, um, more durable.

Folks in the small dog pack love that their little ones don’t take up the whole couch, they can travel and live where the big guys can’t, they eat less – and ‘get rid’ of less.

I had always claimed membership in the big pack, because well, big dogs are better. Until a Chihuahua caught my heart. Chihuahua? Yappy, neurotic, hyper, and not so bright, right? Nope. Quiet, calm, and smarter than my Doberman. If “Pete” had thumbs and longer legs, I’m certain he could drive my car. And it’s manual transmission.

Twelve years with his well-practiced economy of barking, cool reserve, and ability to pick up a trick in a single try, taught me that it’s not the size of the dog so much as it's the training and care that determines the behavior, the result. All dogs bear potential to deliver big rewards. Even the small ones.

Small in Stature, Big in Presence

And in the agriculture arena, small farms matter, too. Many perceive small farms as unable to contribute to the nation’s food source and economy to the same degree as megafarms. According to the U.S. Department of Agriculture, 90 percent of U.S. farms classify as small (less than $250,000 yearly gross income),1 conversely they drew only 11% of total sales in 2017.3

Reward for Good Behavior

Nevertheless, small farms beg an array of benefits:

  • Warrant shorter transport distances, and therein smaller carbon footprint
  • Yield more seasonable crops with less environmental impact
  • Facilitate biodiversity
  • Support economies of local rural communities
  • Bolster local food supply security
  • Create competition that protects against monopolies
  • Stimulate community cohesion and fellowship (63% of farmer’s market customers interact with one another, only 9% in the supermarket)2

Chained Out in the Rain

With all these positive returns, small farms are worth nurturing. But many do not have bushels of resources like that of large farms. They’re more vulnerable to weather patterns, labor issues, and pressures to partner with corporations.

And the government tends to favor the big dogs by tossing 80 percent of crop insurance subsidies to the ‘big four’ megaproducers: soybeans, wheat, corn, and cotton.2 Farms with income ranging $100,000 to $249,000 operate with a profit margin sitting around negative 1.8 percent.5 They’re too modest to sell to large corporations but too big to participate in farmer’s markets.

Sometimes the small guys need a few extra bones to stay healthy and preserve independence and productivity – but they’re too busy ‘in the field’ to recognize the opportunities barking right in front of them.

Cultivating Innovation: The Power of Agriculture and the Research Credit

Teaching Small Farms New Tricks

Often small farms don’t realize they can find some extra monetary meat through research and development (R&D) tax credits. Of course, the name impresses images of bespectacled scientists hunched over microscopes, and therefore many farmers don’t consider the tax credit a possibility for agribusiness.

Or if they do, they rollover under the misguided notion that qualifying research and improvements must be grand-scale, industry-shaking inventions, which only the megafarms can unleash.

Indeed, many small farms are already conducting activities that qualify for the credit, such as testing new fertilizers, improving irrigation systems, trying out new feeds, enhancing harvesting equipment, etc.

Here’s how it works: When a farm performs qualifying activities that attempt to develop new or improved products, processes, techniques, or formulas, the R&D tax credit returns a dollar-for-dollar reduction in a farm’s federal income tax liability.

Better yet, recognizing that large enterprises alone aren’t driving technological advancements and innovation, as of the start of 2016, the government allows small businesses, such as farms with less than $50 million in gross receipts to use the R&D credit to reduce their Alternative Minimum Tax (AMT).

And startup agribusinesses without an income tax liability and gross receipts less than $5 million for the taxable year can apply R&D credits to offset a portion of their federal payroll tax.

Barking Up the Right Tree

For a farm to reap these potentially lucrative credits, qualifying improvements need only be new to the farm, not the world. The money the farm retrieves from the credits can be invested back into further enhancements, hiring additional hands, or any other business essentials.

The R&D tax credits can fetch immediate cash flow for small farms that take pride in staying small but want to prosper to their full potential.

 “…people will always need food, clothing, and shelter, and someone will provide them. But there will be no future for farming -- not unless we have the courage to challenge and disprove the conventional wisdom that farmers must either get bigger or get out.” ~ John Ikerd, University of Missouri

Farmers looking to learn more about their R&D credits potential and maximize their savings, should call on a tax professional. A specialist can help translate the complexities and ensure the farm gets the biggest bite of credits available.



What Can R&D Do For You?  Discover a practical approach to maximizing your federal research and  development tax credit. Download Guide

  1. Small and Family Farms, United States Department of Agriculture, 2019
  2. Five Benefits of Small-Scale Farming, Rural System, Inc., 2013
  3. 2017 Consensus of Agriculture, United States Department of Agriculture, 201
  4. The Farm CPA: Are R&D Tax Incentives Right for You?, AGWEB, 2017
  5. To make local food more accessible, time to revive mid-sized farms, grist, 2011

Topics: R&D Tax Credit

Corporate Tax Incentives

Written by Corporate Tax Incentives

CTI is a tax incentives specialty firm that secures greater tax credits for businesses with our proven project methodology and unparalleled personalized service. For almost 20 years, our elite tax professionals have proactively engaged clients to deliver unmatched value with transparency and efficiency thorough secure in-house software, comprehensive audit-ready deliverables, and 24x7 access to real-time dashboards. We are tax consultancy experts passionate about maximizing credits and incentives for powering the success of your business.