Author: Jenna Kubiak, Leyton US
The R&D Tax Credit! Every company should explore the tax saving benefit of the R&D Tax Credit, irrespective of size!
With growing populations and aging urban environments, there is an increased need for the development of new and improved infrastructure. Architecture, engineering and construction (AEC) companies are continually working to design, develop and rehabilitate the buildings, roads, bridges and infrastructure systems that service all aspects of our day to day lives. Such Infrastructure projects make AEC firms excellent candidates for the R&D Tax Credit. The emergence of new technologies and increased understanding of materials has created a push for innovation in the engineering world, driving companies to improve upon their design processes and develop more sustainable infrastructure. if your company falls under Architecture, engineering and construction, learn how you can benefit from the R&D Tax Credit.
The unique nature of each individual infrastructure project make AEC firms excellent candidates for the R&D Tax Credit. Eligible architects, engineers and construction businesses have the potential to recapture qualified costs in their day-to-day operations and R&D expenditures through the federal R&D Tax Credit. As these companies continue to design and innovate, the capitalization of tax incentives allows them to promote future innovation, growth, and re-invest in their business potential.
Ready to Start Building Your R&D Tax Credit Claim?
What is the R&D Tax Credit?
How do I qualify for the R&D Tax Credit?
Companies can claim the R&D Tax Credit by qualifying their activities according to the four-part test. Qualifying activities can be found at each stage of the design, engineering, and construction lifecycle, but each activity must pass each element of the four-part test to qualify. The four-part test asks:
Using the 4 part test to determine qualifying R&D activities
- Is the activity intended to make or improve a product or process that results in improved function, performance, reliability, quality, or cost efficiency?
- Does the activity intend to eliminate uncertainty when developing or improving a product or process related to methodology, design, techniques, formulas, or inventions?
- Does the activity include a process of experimentation to eliminate or resolve uncertainty by evaluating alternatives or approaches using trial and error, modeling, or other methods?
- Is the activity technical in nature by relying on a hard science such as architecture, engineering, or materials science?
It is important to note that the success of the creation of or improvement upon a product or process is not necessary to qualify for the R&D Tax Credit. The new or improved product or process also does not need to be novel to the industry, so long as the results of the research and development are new to the business conducting them.
Frequently, qualifying R&D activities can be seen throughout numerous phases of the design lifecycle, including preliminary/schematic design, design development, and the development of construction documents until all uncertainties as to the final design of the business component have been resolved.
What are the Qualifying Activities for Architecture, Engineering, and Construction?
- – Geotechnical engineering
- – Foundation design and engineering
- – Structural design and engineering
- – Façade design and engineering
- – Mechanical, electrical & plumbing (MEP) design and engineering
- – Building information modeling (BIM)
- – Materials Engineering
- – Design of temporary structures such as scaffolding, falsework, and formwork
- – Value Engineering
Qualifying Research Expenses (QREs)
Qualifying costs are the expenses incurred in performing qualifying activities. Potentially qualifying R&D expenses include:
- – Compensation paid to employees involved in the R&D activities, including employees with direct involvement, as well as employees that directly supervised or supported the R&D projects such as managers and supervisors.
- – Payments made to third parties (sub-contractors, engineering firms, sub-consultants) for the purpose of conducting qualified R&D are captured at 65% of costs
Why work with R&D Tax Credit Specialists?
The technical nature of the R&D Tax Credit makes it essential for businesses to work with a firm with extensive experience in the AEC realm. Leyton’s Engineering Team is comprised of qualified experts who work alongside our tax professionals to help substantiate your claim through a technical analysis of your eligible R&D activities and expenses.
Along with your claim, Leyton’s experts will provide a detailed Technical Report, outlining the methodology, activities, and supporting documentation that qualifies your business for the R&D Tax Credit.
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*This is not an exhaustive list. Many more industries are eligible.