Is Your A&E Firm Benefiting from R&D Tax Credits?

Author | Source Advisors

January 21, 2021. 3 min read
R&D Tax Credits for Engineering Firms

Thousands of architectural and engineering (A&E) firms in the U.S. can benefit from research tax credits as they strive each day to develop advanced commercial buildings and other structures that are attractive and functional as well as energy efficient, easy to maintain, safe, and affordable to construct. A&E firms, whether developing a sky-rise office building in Manhattan, an advanced suspension bridge or a suburban shopping mall, are faced with a host of technical challenges that require their engineers and technical leaders to devise solutions that are unique, viable and cost effective.

Do A&E firms realize that a significant portion of their development efforts qualify for federal and state R&D Tax Credits? Surprisingly, very few A&E firms take advantage of this valuable tax incentive because they are unfamiliar with the regulations or unaware that the technological innovation employed in their design work satisfies the IRS code concerning the Credit for Increasing Research Activities.

What Architectural and Engineering activities qualify for the credit?
  • Evaluating alternative designs for performance, cost to build, energy- efficiency, etc.
  • Testing and analyzing new and alternate materials.
  • Evaluating alternative assembly methods and techniques.
  • Resolving problems relating to structural reclamation, vibration control, soil remediation, ground water and erosion issues, etc.
  • Assessing the best approach to meeting “Passive House” standards.
  • Devising improved hazmat storage systems, pump buildings, power sub-systems, etc.
  • Analyzing and remediating ground contamination problems.
  • Evaluating the best means to minimize energy use and reduce water consumption.
  • The most effective approach for removing solids from process wastewater.
What A&E expenses qualify for the credit?

Qualifying expenses include:

  • Taxable wages of the employees involved in the company’s development work
  • Consumed supply expenditures such as materials used in 3D printing, prototypes, models, etc.
  • Contracted expenses such as consultants, testing labs, and software developers

In order to qualify for the R&D tax credit, the research activities must satisfy the Four Tests ascribed by the IRS. In addition, the company carrying out the work must bear the financial risk for the development work. Generally, a company that performs its work under a fixed-fee contract bears the financial risk. In the case of a contract that is performed on a time and material basis, the payer bears the financial risk and therefore, the costs related to these types of contracts may not qualify for the credit.

To learn more, talk to the R&D tax credit team at Source Advisors. We can quickly determine if your Architectural and Engineering firm qualifies and help you decide if an R&D study would be financially valuable for your firm.