Executive Corner: The R&D Tax Credit: Major Savings Available for Architects and Engineers
When it comes to taxes, the main focus for architecture and engineering firms of late has been the new tax law and the opportunities it’s providing companies to grow and reinvest in their businesses.
For this installment of “Executive Corner,” Russ Ryan, principal at Rusk O’Brien Gido + Partners (email: email@example.com) interviews Brian Aumueller, managing director with alliantgroup (email: firstname.lastname@example.org).
According to Aumueller, the most important and value-saving tax provision for architects and engineers remains the same: the Research and Development Tax Credit. An incentive that has long benefited architecture and engineering firms, the credit is one of the best opportunities for companies to generate valuable dollars for reinvestment.
Ryan: Could you provide a little background information on the R&D Tax Credit and what makes it such a great opportunity for architects and engineers?
Aumueller: The R&D Tax Credit has been around since the 1980s, but due to new laws, regulations and court rulings, the credit has expanded through the years for the benefit of numerous industries. No longer is the credit just for the traditional research you see in a lab, but for applied research as well—the technical work that’s done on the factory floor, behind a computer or in making schematic designs to improve products or processes.
As it relates to architects and engineers, the credit largely rewards the technical aspects of their design or development work to improve a structure or system, whether it be enhancements related to energy efficiency, functionality, efficiency, etc. The intent of the credit is to incentivize innovation and keep high-paying, technical jobs here in the United States, making it a natural fit (and potentially valuable opportunity) for architecture and engineering firms.
Given this change, I would implore all firms to not self-censor and at least explore their options with respect to the credit. In the past, I have seen many firms self-censor and assume that because they’re paid for their work, they don’t qualify. This is simply not the case and why 75 percent of engineering and architecture firms lose out on the benefit. Meanwhile, the remaining 25 percent (their competitors) use these dollars to reinvest back into their business.
At least explore your options when it comes to the R&D Tax Credit.
Ryan: What’s the savings potential for a firm that qualifies for the credit?
Aumueller: Offering a savings average is a bit difficult given that the credit is so fact-specific, with a number of variables ranging from the amount of qualifying projects to the number of employees and their wages playing a role in determining the final credit result.
However, I have witnessed numerous companies receive results as high as six figures in tax savings. For their efforts in developing new and improved designs and construction processes for office, industrial, retail, medical and high-tech structures, one firm received $244,000 in federal R&D tax credits. For a number of projects spanning a multi-year period, including one related to the development of a 500-foot-wide parking garage, one of my firm’s structural engineering clients received more than $600,000 in federal credits.
Although these are certainly high-end results, they show how valuable the credit can ultimately be for a business.
Ryan: What are a few common qualifying activities?
Aumueller: To give you an idea of the types of architecture and engineering firms that we have qualified in the past, here are some of the common activities that have made these firms eligible for the R&D Tax Credit (but there are many more qualifying activities than just the following):
• Developing unique energy-efficient features
• Designing master plans or developing schematic designs
• Creating planning and elevation drawings
• Designing a functional site plan to incorporate or overcome the site plan features
• Developing construction documents
• Designing and developing building facades
• Creating designs that lead to LEED certification
• Designing building systems or site orientations
• Designing building shape and form
• Programming Logic Control (PLC Programming)
• Improving or determining alternative heating and cooling, ventilation, plumbing, piping and refrigeration systems
• Developing innovative designs for bridges and roadway structures
• Designing innovative sanitary sewer systems or drainage systems
• Fluid dynamic analysis and design
Ryan: What effect has the new tax reform bill had on the R&D Tax Credit?
Aumueller: The most immediate change impacting the R&D Tax Credit relates to the law’s broader elimination of corporate Alternative Minimum Tax (AMT) and the curbing of the number of pass-throughs subject to individual AMT.
With the loosening of AMT restrictions, the new law has removed the most significant hurdle preventing companies from utilizing the credit. In prior years, perfectly eligible companies were effectively barred from the credit due to the AMT floor. With the new rules in place, businesses across the country can use the credit to lower their tax liability; with a host of qualifying activities, many architecture and engineering firms are poised to take advantage.
Considering the new rules and their applicability to their industries, architecture and engineering firms should definitely be exploring their options with regard to the R&D Tax Credit.