Work in the Architecture/Engineering Industry? The R&D Tax Credit Could Apply to You.
Written by Ross Mendheim, CPA
Last year, BMSS posted an article about the Research and Development (R&D) Tax Credit and the benefits of discovering if you are eligible for the credit in general. Many companies assume that they don’t qualify for the credit if they don’t have lab facilities and scientists walking around in white lab coats. There are more companies than you would realize who qualify for the credit who aren’t “traditional” research companies.
For example, architecture and engineering firms are prime candidates for the R&D Tax credit. Even though it has been around since 1981, the federal government has made the tax credit permanent and has broadened the definition of “Qualified Research Expenditures.” Simply put, if your company is working towards discovering a new way to improve or develop a unique process for use in, say, structural engineering, you may qualify for the credit. Just a few examples of architecture/engineering functions that may qualify include:
• Developing new building design and construction processes
• Assessing and testing alternatives through modeling or computational analysis
• Developing new or more efficient water or electrical systems
• Developing and testing of new processes and materials in structural systems
• Environmental designs or the development of different construction materials
• Improving ventilation or heating and cooling systems
Not only do the costs of supplies for this type of research and development fall under Qualified Research Expenditures but a new bill was introduced by U.S. Senators Chris Coons and Pat Roberts which states that products which are made in the U.S. by R&D that took place in the U.S., would enhance the credit and could possibly increase the value of the credit by as much as 25% or more. More importantly, these research and/or developing ideas do not have to be successful to qualify. Even failed attempts may fall under the Qualified Research Expenditures.
Another qualified expense that can be realized through the credit is the payroll involved in the research and development. This applies to the direct research, the direct supervision of the research and even the direct support of the research. Any contracted research may be eligible for 65% of fees and costs.
Even if you don’t believe that you have qualifying activities, it could be beneficial to you to have a BMSS R&D tax expert review your company’s activities. The benefits could greatly outweigh the review process and gain your company valuable tax credits, even possibly covering the past three years if you have not yet taken advantage of the credit. The key is to document everything such as time tracking or implementing a project accounting system rather than relying solely on estimating expenses. That way, the information is there for review and qualifying credits can be easily identified.
Contact one of our BMSS R&D Tax experts today to see if you qualify.