Distilleries R&D Tax Credits

Harness innovation in spirits production. Distilleries across the U.S. are experimenting with exotic botanicals, new mash techniques, novel barrel maturations and process automation. Many of these activities qualify for the federal R&D Tax Credit under IRC §41, with further state‑level opportunities.

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Examples of qualifying activities in distilling

Mash & Fermentation Innovation Trialling new grain blends or botanicals, alternative fermenter designs, mixed‑culture fermentations, yeast strain optimization
Distillation & Separation Process Development Testing new still design, reflux ratios, advanced separation/column techniques, flavour capture technologies
Barrel Maturation & Finishing Trials Experimenting with wine/sherry/taro barrels, new wood treatments, rapid‑ageing technologies, flavour infusion during maturation
Packaging & Bottling Technologies Piloting automated fill, new bottle shapes, inert gas integration, smart caps, small‑batch format testing
Sustainability & Waste‑Reduction Projects Spent‑grain reuse, water reuse systems, CO₂ capture, energy‑efficient still heating/cooling, packaging reduction/biodegradable formats
Scale‑up & Process Control Moving from micro‑batch to commercial runs; refining process controls, sensor integration, yield tracking and automation

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What qualifies as R&D in distilling?

To qualify, activities must:

Pursue a permitted purpose such as a new or improved product, process or technique (for example, a novel botanical gin recipe, faster ageing method, or automated bottling line)
Address technical uncertainty about how to achieve the flavour profile, yield, maturation time, or equipment performance
Follow a process of experimentation — for example pilot batches, varied mash/fermentation protocols, alternative still designs, barrel trials
Be technological in nature, grounded in chemistry (distillation, flavour, reaction), biology (yeast/mash), engineering (still/tank design), materials science (barrel wood, coating)

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Qualified Research Expenses (QREs)

Expense Type

Examples in Distilling

Eligibility Notes

Wages

Distillers, process engineers, QA/QA lab techs, packaging engineers

Direct, supervisory and support roles involved in qualified research may qualify

Supplies

Botanicals, new grain blends, prototype packaging, barrels for trials, filtration media

Supplies must be consumed during the research process

Software / Cloud

Process control software, sensor platforms, yield and flavour‑data analytics

Eligible if used for qualified research

Contract Research

Outside lab tasting/chemistry, engineering modelling for new still/automation systems

A portion of contractor costs may be claimed

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Roles commonly involved in qualifying activities

Master distillers, assistant distillers
Fermentation scientists, microbiologists
Process engineers and automation specialists
Barrel‑maturation specialists and flavour chemists
Packaging engineers and sustainability leads
External R&D partners and consultants

What does not qualify

Routine production of a standard product following an existing recipe without experimentation
General marketing, branding, sales or administrative tasks unrelated to experimental development
Applying previously proven methods at scale without any experimentation or improvement
Land acquisition or equipment purchases not tied to experimentation

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Compliance and Documentation

§174 Update

Following the One Big Beautiful Bill Act (OBBBA) signed July 4, 2025, §174 now allows immediate expensing of domestic research expenses for tax years beginning on or after January 1, 2025. Taxpayers may also elect optional amortization under new §174A. Foreign research expenses must still be amortized over 15 years. This is separate from the §41 credit but impacts overall tax planning.

Maintain clear records of:

Project descriptions, objectives, hypotheses and experimentation plans
Batch logs: ingredient lists, mash/fermentation parameters, still run details, yield, flavour/sensory results
Barrel logs, maturation times, flavour profiles, clarifier/treatment data
Packaging/bottling line test runs, sensor data, control changes
Employee time allocations tied to research activities, contractor invoices and software usage logs

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Frequently Asked Questions

Do distilleries qualify for the R&D Tax Credit?

Yes. Spirits producers that develop new recipes, ageing or finishing techniques, separation/distillation processes, packaging innovations, or sustainability projects may qualify.

What expenses can be claimed?

Wages of staff working on experiments, supplies for trial batches and packaging prototypes, software used in modelling/analytics, and a portion of contract research costs.

Which distilleries are eligible?

Small craft distilleries through larger regional operations may be eligible, as long as they are engaged in experimentation of products, processes, packaging or operations.

What activities do not qualify?

Routine production without experimentation, standard bottling runs, marketing or sales efforts, equipment installation without experimentation.

How much can distillers typically save?

Savings vary by scale, trial volume and documentation. Industry sources indicate beverage companies may qualify for around ~18% of their eligible expenses.

How should documentation be maintained?

Keep batch logs, process variation records, still/fermentation data, barrel logs, packaging test logs, employee time sheets, contractor invoices and software usage logs that tie to research projects.