The R&D Tax Credit for Construction, Engineering, and Architecture
webmanager • May 17th, 2023
Do you own a construction company?
If so, you may be eligible to save between $50,000 and $5M on taxes each year!
No, this isn’t April Fools Day!
The R&D Tax Credit is an often overlooked, yet extremely lucrative tax credit in the United States that many construction companies qualify for.
In this blog, we’re going to break down the R&D Tax Credit for Construction Companies (Engineering, Architecture too) and tell you exactly what you need to do to claim it for your company.
The Research and Development Tax Incentive (R&D Tax Incentive or R&DTI) helps companies innovate and grow by offsetting some of the costs of eligible research and development (R&D).
The R&D Tax Credit is an industry specific tax-reduction plan that can help you Increase your cashflow today.
While it’s often overlooked by many construction companies, R&D takes place during many different phases of a construction project, including initiation, predesign, off site fabrication and building information modeling.
All of these activities have some element of qualified R&D expenses.
Here are a few examples of construction-based activities that qualify for the R&D Tax Credit:
It’s important to work with a construction or real estate specific accountant in order to determine the specific activities in your business that qualify.
How much your company can save on taxes with the R&D Tax Credit will depend on the size of your operation and the activities performed.
Generally, clients can save between $50,000 to five million dollars based on the amount of expenses determined to be qualified for the credit.
The credit amount can range from 5 – 10% of the company’s R&D qualified expenses in any given year.
Qualified startups can claim up to $250,000 against payroll taxes for up to five years.
The best part is that you don’t have to be profitable to qualify for the payroll tax offset.
It can be used by any company with less than $5M in revenue, and within five years of the first gross receipt.
This offset must be elected with the original filing, so it’s important to work with an experienced accountant now in order to claim your tax credit.
If you don’t have an experienced accountant in this area, feel free to book a free 15-minute call with one of our accountants here.
The R&D Tax Credit is an extremely lucrative credit for construction companies to take. However, it isn’t as simple as checking a simple box come tax time.
While some taxpayers may estimate some of the expenses (bad practice), you must document the assumptions used for your estimates.
Here’s an example of such documentations:
Your construction accountant can help you manage & submit these documents.
The IRS has recently changed the rules regarding the R&D Tax Credit.
Companies are now required to capitalize and amortize investment in R&D over 5 years for domestic activities, or 15 years for foreign activities.
In order to save tens of thousands, if not hundreds of thousands of dollars for your company, it’s important to work with a specialized tax consultant on this tax credit.
Working with a specialized tax consultant can save you valuable time and resources.
If you don’t currently have an experienced accountant you’re happy with, we are always here to help.
Simply book a 15-minute call using this calendar to ask us any questions you have.
Until next time!
Samy Basta brings you more than 20 years experience in tax, financial, and business consulting to his role as founder of Basta & Company. His focus is primarily strategic business planning, empowering clients to set priorities, focus energy and resources, and strengthen operations. In addition, Samy and his firm provide strategic counsel, and technical insight, on a wide range of needs, including tax saving strategies, tax return compliance, as well as choice of entity.
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