It may come as a surprise to some industry professionals that many construction and engineering firms invest significant amounts of money in research and development, yet never claim tax credits for it. The fact of the matter is that there are substantial tax incentives available in much of the typical work conducted by construction and engineering companies.
Many companies in the engineering and construction industries fail to claim the credit because they assume their activities don’t qualify when, in fact, these industries conduct a broad range of activities that may be eligible for the credit.
Examples of Qualifying Activities for the Construction Industry:
- Developing prototype building facing systems for testing and validation
- Exploring newer and better methods for hazmat storage, pump buildings, power substations, etc.
- Developing new polymer roofing systems, including waterproofing methods, membranes and sealants
- Analyzing and remediating ground contamination problems
Examples of Qualifying Activities for Architectural & Engineering Industries:
- Evaluating alternate designs for performance, cost to build, energy-efficiencies, etc.
- Testing and analyzing new and alternative materials
- Evaluating alternative assembly methods and techniques
- Resolving problems relating to structural reclamation, vibration control, soil remediation, ground water and erosion issues, etc.
If your firm engages in any of these or similar activities, you may be owed tax credits or refunds.
So what is the R&D tax credit? It’s a business tax credit created by Congress to promote innovation and jobs. Federal and state R&D tax credits can amount to as much as 20% of the costs incurred in developing new products, processes, and software as well as improving existing products, processes, and software. The R&D Tax Credit is not a deduction; it is a dollar-for-dollar credit against taxes owed or taxes paid.
Just how substantial can these tax credits be? We conducted a multi-year study for an engineering design firm with fewer than 150 employees that has been in business for over 20 years but has never claimed the R&D tax credit. We discovered that the company was able to claim approximately $634,000 in federal research and development tax credits for the three tax years 2013-15.
If your company operates in the construction, architectural or engineering industries and performs any of the previously mentioned qualifying activities, there is a good chance that you would benefit from the R&D tax credit. The federal government awards billions of dollars in R&D credits every year, and if your company is not considering the potential of the R&D credit, you could be missing out on your share of these significant tax benefits.