December 3, 2023

Julio Gonzalez, National Tax Reform Expert and CEO of Engineered Tax Services (ETS), The Growth Partnership and ABLE CRM.

Research and development activities avail one of the largest tax credit opportunities to companies that utilize them, but often, few do. The cosmetics industry is one of the largest and fastest-growing sectors in the United States, and there is zero indication of that growth slowing anytime soon.

R&D is the backbone of this industry, with newer, better, more effective, cleaner and simpler products entering the market on a daily basis. It would stand to reason that any company in this space would take advantage of the chance to get back some of what they spent researching and developing their products. However, this tax credit is frequently overlooked, unwittingly costing businesses a fortune and subsequently preventing R&D activities from proceeding, resulting in less innovation.

Many qualifying companies fail to utilize this lucrative tax credit. Not all CPAs are aware of or able to obtain every available tax credit for every client’s business. This is where the assistance of specialty tax credit firms may be useful for this and other specialty tax credits. R&D can present a massive opportunity to those who integrate it into their tax strategies. Research and development is the department in companies that keep consumers safe—preventing toxicity, decreasing side effects and unwanted consequences and optimizing certain processes. It is what keeps companies reaching for the next level, the better way and the next great discovery.

More than 30 million small businesses in America perform some form of research and development. Because the government wants companies to go to great lengths to ensure safety and efficacy, it pays, in the form of tax credits.

R&D In The Beauty And Cosmetics Industry

In the beauty industry, research and development are crucial for making a product safe and effective. Naturally, continuously innovating better, more effective, cleaner and safer products are undeniable ways to stay ahead of the competition and provide better products.

R&D empowers cosmetics companies to keep their products, and therefore their company, at the top of the market, constantly innovating and improving upon existing products. If some portion of a business is putting labor and money into these activities, it is likely eligible for R&D tax credits.

The beauty industry in the U.S. is worth $530 billion with the average consumer spending around $190 per year on cosmetics. It’s a great time to be a progressive, technology-focused contender in the cosmetics industry. A large portion of those profits are reinvested in R&D, but most of the time for most companies, it ends up being another operating cost when it could be leveraged as a lucrative tax credit.

Boundless Opportunities For Growth

It is an exciting space, for a multitude of reasons. It’s also in a state of constant evolution. The demand for newer, superior products is massive. Consumers are looking for cleaner, more organic, more effective and more scientifically sound products on all levels. While effective marketing is still king, the demand is shifting to effective products with customers becoming increasingly knowledgeable about and interested in what goes into what they are using on their skin and bodies, as well as what it does and whether it works. The sciences are playing an increasingly prominent role in this industry so, naturally, research is a constant. Stem cells, nanotechnology, biotechnology and the like have entered the picture and created new, competitive products with efficacy at the forefront.

Additionally, a long overdue discussion is occurring around the toxicity of certain common ingredients often found in mainstream cosmetics, such as talc, mica, parabens and many more. Despite substantial proof of potentially hazardous elements of these ingredients, they are still widely produced and disturbingly common. Hopefully, this further encourages the trend of cosmetics companies opting for healthier, cleaner ingredients and doing away with more toxic ingredients.

Spanning A Multitude Of Industries

R&D tax credits not only apply to the cosmetics element of the beauty industry, but also to related health industries. Universities invest heavily in medical research and development in order to keep costs low for people who may potentially have skin cancer or hope to heal other skin disorders like eczema or rosacea.

Similarly, hair regrowth products are on the cutting edge for those suffering from male pattern baldness, and products like Botox, hyaluronic acid and Juvederm are rapidly growing in popularity and demand. Any company working to bring these kinds of life-altering innovations to the market should ensure they are not throwing away valuable tax dollars that could have been reinvested to improve upon existing offerings while perhaps even discovering new ones.

As a business leader, if you are doing anything at all to seek ways to advance your products and services, you should be speaking to your tax advisor about how to claim these credits. It is often advisable for CPAs to use specialty tax credit firms to obtain less common tax credits like R&D. A specialty tax credit firm can likely also assist in pinpointing myriad other specialty tax credits that traditional CPAs may not have the resources to obtain on their own.

Small and medium-sized businesses represent more than 90% of the businesses in the U.S., and many of those businesses provide cosmetics and beauty services. R&D justifies generous spending by the government due to the fact that it is often highly regulated to develop or improve upon innovations, and typically, it’s much easier for companies to exercise the existing tools in their industries instead of putting in the work to develop better tools. But R&D plays a crucial role in everything America is and will become.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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