Industrial Hemp: Tax Incentives

Hemp Industry & Tax Saving Opportunities

 

Without IRC § 280E limitations, hemp businesses may be able to take advantage of various federal tax credits and tax deductions incentives. This includes federal tax credits such as the research and development credit (pursuant to IRC § 174 and IRC § 41), the work opportunity credit, and the solar investment tax credit which may open the opportunity for additional cash savings for applicable hemp industry businesses.

Hemp is a versatile plant with numerous applications across multiple industries. This includes textiles, manufacturing and nutritional applications, or new fuel / energy application. Industrial hemp affects not only the agricultural industry, but also touches the medical, manufacturing, energy, nutrition and tech industries as well. Industrial hemp has traditionally been divided into three main categories: fiber, grain and high-cannabinoid producers (CBD). However, as further research is undertaken, more industries may soon emerge. 

Research and development is a critical component of the hemp industry’s current and future evolution. In particular, hemp related businesses performing qualified research and development activities, may now qualify for and benefit from R&D tax credits at the federal and state level. Potentially eligible costs for R&D tax credits include wages, cost of supplies, and cost of testing and contract research expenses. Because the majority of state R&D tax credits qualification and calculation tax laws follow the federal R&D tax credit requirements, the activities and associated expenditures of such companies may also qualify for state R&D tax credits as well. 

Industrial Hemp & Derivatives (e.g. fiber, grain, cannabinoid "CBD") companies may be eligible for R&D tax credits for performing qualified research activities. For example, the following activities may be eligible for R&D tax credits:

  • Performing technical research on the use of LED lighting for indoor growth enhancements

  • Performing technical research on new and/or improved technologies in air purification, heating or lighting

  • Developing new and/or improved new strains of hemp via genetic and cross breeding techniques

  • Developing new and/or improved irrigation/hydroponic systems

  • Developing new and/or improved edible product materials with qualified CBD derived from hemp failing within specific parameters

  • Developing unique hemp strain uses for biofuels, textiles and other materials 

  • Designing new and/or improved technical processes to get more accurate readings of the hemp plant strain’s potency and related indicators

  • Designing and developing new and/or improved fertilizers, plant spacing, and other variables to increase yield or production 

  • Designing new and/or improved machinery and performing experimental validation analysis to develop automated systems for indoor growth

  • Designing new and/or improved computer-based control and monitoring systems (e.g. hardware, software) including software analytical tools for strand identification

  • Experimenting within new and/or improved prototypes and processes to develop improved efficiency during growing and harvesting

  • Experimenting with new and/or improved topicals and skin absorption formulations

  • Testing new CBD oil products and extraction techniques

  • Testing of new filtration systems for air and water

  • Testing experimental prototypes and evaluation to meet design specifications or requirements (e.g. speed, resolution operation costs) to improve or increase harvest cycle yield

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