Architecture & Engineering R&D Tax Credits

New technologies and a better understanding of materials have stimulated innovation in the engineering industry and encouraged businesses to enhance their design methodologies. Because each infrastructure project is unique, AEC companies are good candidates for the R&D Tax Credit.

This article will take a closer look at architecture and engineering R&D tax credits and specify which activities qualify. Moreover, it will help companies determine what costs they can cover with such incentives.

Why Architecture and Engineering Companies Qualify for Research and Development Tax Credits

Site planning, building design, and construction documentation are all examples of architectural work that can be considered qualified research activities for the purposes of the R&D tax credits for engineering firms. Moreover, 63% of payrolls qualify for credit for actual architectural clients.

At the same time, engineers design and enhance systems or products that are carefully planned to satisfy customer requirements, adhere to legal requirements, and meet efficiency criteria. Many of the costs (often staff salaries) incurred to develop or enhance goods or procedures can be written off as qualifying research expenses (QREs).

Numerous states also provide tax advantages in addition to the federal credit. Startups and pre-revenue businesses can use the federal R&D tax credits to offset future payroll taxes if they have fewer than five years of revenue.

R&D Tax Credits for Engineering Firms

Between 2016 and 2019, federal and California R&D tax incentives for civil/structural engineering firms were over $1 million. Sectors like construction, environmental, electrical, mechanical, structural, civil, and product engineering, architecture, and LEED have received millions of dollars after claiming large R&D tax credits. They could use the funds to reinvest in their personnel, infrastructure, and ongoing innovation.

Qualifying Activities

Here are some of the tax credit eligible activities:

• Creating floor plans and building facades

• Devising energy-efficient designs for individual buildings

• Working to implement water distribution infrastructure for towns and water districts

• Designing structural systems, HVAC, or electrical insulation

• Analyzing different heating and cooling options

• Inventing new ways to use space

• Enhancing designs to satisfy functional demands

Costs an R&D Tax Credit Covers

Companies can deduct expenses for staff salaries, supplies and raw materials, computer rentals, and outside contractors incurred throughout the R&D process. For instance, potentially qualifying R&D job titles include drafters, principals, BIMs, CAD designers, C-Suite, project managers, and electrical, industrial, structural, mechanical, and project engineers. In fact, 36% of all business expenses typically qualify for an R&D tax credit.

Businesses can receive additional financial benefits from tax refunds by amending prior-year tax returns (going back three years). The IRS permits taxpayers to carry credits forward for up to 20 years if they cannot use the R&D credits right away.

When You Need Expert Help

Our experts work on a success-based pricing system that allows companies in the architectural and engineering sectors to get research and development tax credits or refunds without having to pay any upfront fees. We provide full audit protection as well as a money-back guarantee. To calculate your possible benefit, use our R&D tax calculator.