Industrial hemp is a variety of Cannabis sativa L, which contains 0.3% or less of THC. Until the 2018 Farm Bill passed, hemp was considered federally illegal and classified as a Schedule I drug under the Controlled Substance Act (CSA), therefore no federal deduction or credits were allowed under Sec. 280E of the Internal Revenue Code. Hemp and cannabidiol (CBD) must be derived from the industrial hemp plant (C. sativa) to qualify for the R&D Tax Credit — not the cannabis plant.
If your business focuses on industrial hemp-derived products or processes, whether it is hemp energy bars, hempcrete, CBD tinctures, or lotions, your R&D costs could be offset by a dollar-for-dollar tax credit. In addition to the federal credit, many states offer tax breaks for qualified small businesses. Pre-revenue companies and start-ups with less than five years of revenue can use the federal R&D tax credits to offset future payroll taxes.
The following industries have claimed significant research and development tax credits and received millions in capital to reinvest in their workforce, infrastructure, and continued innovation:
Cannabinoid Product Development
Cannabis / CBD Testing Labs
CBD Extraction Companies
CBD Product Manufacturing
Genetics & IP Companies
Hemp Farmers / Growers
White Label Manufacturing
Do you have these job titles on your payroll, or do you hire third-party contractors to do these jobs?
Unsure of whether your hemp and/or CBD development activities qualify? The innovations your company has been working on may be eligible for significant tax breaks. Strike Tax Advisory employs tax experts with years of experience in R&D tax credits, and specifically with hemp tax credits. At Strike, we work on a success-based fee structure, enabling businesses in the Hemp and CBD industries to claim credits/refunds without any out-of-pocket costs. We offer complete audit protection and a money-back guarantee. Use our R&D Tax Calculator to estimate your potential credits claimed, and partner with Strike with no up-front costs. Contact one of our experts today.
The tax credit was created to incentivize companies across multiple industries to keep high-tech jobs in the United States. Companies can claim employee wages, supplies & raw materials, computer rental costs, and third-party contractor expenditures incurred throughout the R&D process. Current law permits companies to amend prior year tax returns (going back to the 2019 tax year), offering additional financial benefits from tax refunds. If you cannot use the R&D credits immediately, the IRS allows taxpayers to carry credits forward up to 20 years.
Amount of cannabinoid product development expenses that typically qualify
Projected revenue in the hemp industry by 2022
Potential immediate federal benefit to start-ups using the R&D payroll tax offset
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Benefits for the R&D Tax Credit vary from state to state. Get an accurate estimate of what your potential state tax credit!