R&D Tax Credits for Architects
Architects are innovators. As such, they are ideal candidates for the research and development tax credit. The R&D tax credit was essentially authorized for the specific purpose of encouraging the research and development of new products, processes, and design. That said, a majority of architects fail to take advantage of America’s largest tax incentive. In 2016 alone, nearly $16 billion in R&D tax credits were claimed, yet architecture firms leave money on the table by not claiming the research and development tax credits made available to them. The primary reasons architects aren’t claiming R&D tax credits are they either don’t know the credits exist or don’t believe they qualify to claim the R&D tax credits. The best way to learn whether your architecture services are R&D tax credit eligible is to work with an experienced and well-qualified R&D tax credit consultant. Schedule a free consultation with Clarus R+D to learn more about the benefits of the R&D tax credit program or to discuss whether you are eligible to claim the credit. Clarus’ technology-driven solution helps architecture firms fuel their growth with America’s largest tax incentive.
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Architects can claim R&D tax credits
The R&D tax credit is the biggest tax incentive available to architects. Since its introduction in 1981, the R&D tax credit has expanded so that more and more architects and software development companies are able to claim the tax credits. In order for your software development company to be eligible to qualify for the R&D tax credit, it must engage in certain qualified research activities.
Clarus R+D has worked with architects across the country to help them claim the R&D tax credit. Examples of potentially innovative architecture and engineering services that may be eligible for the R&D tax incentive include:
- Leadership in Energy and Environmental Design (LEED) certification
- Designing foundation and earthwork for site conditions
- Developing new or improved designs for structures
- Developing elevations
- Developing drawings
- Developing construction documents
- Developing new software applications to use internally to interact with customers/vendors
- Developing preliminary design, development plan
- Developing preliminary computer-aided design (CAD) modeling and testing
- Developing schematic designs
- Developing unique functional and energy-efficient designs
- Developing a site plan
- Energy efficiency development
- Design of building systems
- Developing a lighting plan
- Developing innovations through environmental site design/landscaping
- Design incorporating the use of new materials
- Value engineering
- BIM modeling
- Design-build construction
You don’t have to be among the largest architecture firms to take advantage of the research and development tax credit. Small architecture firms are even eligible to claim the R&D tax credit. In fact, recent changes to the applicable laws have made it easier than ever for more architects to take advantage of the R&D tax credit.
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Benefits of R&D tax credits for architects
The research and development tax credit is a government-sponsored tax incentive available to companies who conduct research and development within the United States. The credit was implemented as a Congressional response to the decline in research spending which negatively impacted the Country’s economic growth, productivity gains, and overall global competitiveness. The R&D tax credit was initially implemented in 1981 and has since been reauthorized several times. In 2015, when the Protecting Americans from Tax Hikes (PATH) Act was adopted, the Research and Development (R&D) credit became a permanent part of the tax code
Many architecture firms assume the R&D tax credit is available only to the big firms. This, of course, is not the case. An architect is eligible for the incentive as long as they are engaged in qualified research activities, regardless of the size of their firm. Under the current tax code, any company that develops or improves products or processes may be eligible for the credit. The number of architects who engage in eligible activities is ever-increasing; architect services are, by nature, innovative. Clarus R+D is your tax credit consultant of choice to help your architecture firm take advantage of the research and development tax incentive.
Most architects are unaware of the tremendous benefits of R&D tax credits. For most A&E firms, the credit is worth 7-10% of qualified research expenses. This is a dollar-for-dollar credit against taxes owed. Plus, it carries forward 20 years. For startups, applying the credit against payroll taxes is a valuable, non-dilutive funding opportunity. Eligible expenses for the R&D tax credit include U.S.-based wages, contracting, and supply costs. Most typically, wages are the largest qualified expense, but there must be nexus between the expense and qualified project. Additionally, most states offer an R&D tax credit that can supplement the federal R&D tax credit.
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Architects and R&D tax credit eligibility
Working with a professional &D tax credit consultant, like Clarus R+D, is the best way for you to determine your tax credit eligibility. In order for an architect to be eligible to receive the research and development tax credit, the architect’s services must have included activities that are deemed qualified research. Qualified research generally is private sector or commercially driven development intended to yield innovation within a scientific or technological field. The following four-part test determines whether an activity is considered qualified research and, thus, eligible for the R&D tax credit.
The purpose of the activity or project must be to create new (or improve existing) functionality, performance, reliability, or quality of a business component. A business component is defined as any product, process, technique, invention, formula, or computer software that the taxpayer intends to hold for sale, lease, license, or actual use in the taxpayer’s trade or business.
Elimination of Uncertainty
The taxpayer must intend to discover information that would eliminate uncertainty concerning the development or improvement of the business component. Uncertainty exists if the information available to the taxpayer does not establish the capability of development or improvement, method of development or improvement, or the appropriateness of the business component’s design.
Process of Experimentation
The taxpayer must undergo a systematic process designed to evaluate one or more alternatives to achieve a result where the capability or the method of achieving that result, or the appropriate design of that result, is uncertain as of the beginning of the taxpayer’s research activities. Treasury Regulations define this as broadly as conventional implementation of the scientific method to something as informal as systematic trial and error process.
Technological in Nature
The process of experimentation used to discover information must fundamentally rely on principles of the physical or biological sciences, engineering, or computer science. A taxpayer may employ existing technologies and may rely on existing principles of the physical or biological sciences, engineering, or computer science to satisfy this requirement. Research activities that qualify for R&D tax credits must be conducted in the U.S. If your business does any of the following, it likely qualifies for the R&D tax credit:
- Develops or designs new products or processes
- Enhances existing products or processes
- Develops or improves upon existing prototypes and software
Even if your work passes the four-part test, there are a few exclusions to the R&D tax credit. Expenses incurred under the exclusions will not qualify for the incentive. Some of these already appear in the four-part test, including the need to rely on hard sciences. The activity must take place in the U.S. and cannot include routine data collection or market research. Also, activities cannot receive funding from an unrelated third party because your company might not retain ownership of the resulting intellectual property.
Clarus R+D will work with you to help you understand what is considered qualified research for purposes of determining R&D tax credit eligibility.
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R&D tax credits: Innovative Architectural Design
In order to be eligible to claim the R&D tax credit, architecture and engineering activities must satisfy the four-part test described above. Most of our clients are able to identify innovation that constitutes qualified research in an early development phase. For instance, the American Institute of Architects’ (AIA) standard contract outlines five phases of design that are typically part of the basic services an architect provides. The innovation is generally identified in the schematic design or design development phases.
1. Schematic Design
Schematic design is fairly conceptual in nature. In this phase, an architect will begin to lay out the site, design the interior spaces, and develop basic exterior designs, assuming the project has exterior work. Typically a design professional will prepare a cost estimate as part of this phase. Information regarding the use of the space, programming, is also shared by the owner with the architect during this phase.
2. Design Development
In this phase, the architect advances the design significantly. The main goal of this phase is to define and develop the important aspects of the project. The exterior, interior layouts, room sizes, and materials are more fully designed. The engineers will more fully develop the HVAC, plumbing, and electrical systems.
3. Construction Documents
In the construction document phase, the architect finalize all the technical design and engineering including structural engineering and detailing, heating air conditioning and ventilation systems, plumbing, electrical, gas, energy calculations, and all products and materials are selected. All necessary technical information is finalized.
This stage is self explanatory. The owner begins the process of evaluating and selecting the contractors. During the bidding or procurement phase, an architect will answer contractors’ questions, issue formal clarifications to the drawings or specifications, if necessary, and help evaluate the bids.
5. Construction Administration
Architects monitor construction to ensure the work is being done according to specifications and that the work is progressing according to schedule. The architect will take photos and write field reports to document the progress, and will also verify that the contractor’s billings accurately reflect the amount of work they’ve done. The architect will also work with the contractor to answer questions and issue formal modifications and corrections to the construction documents,
Clarus R + D will work with you and your team to help determine if your services satisfy the four-part eligibility test and are, therefore eligible for the research and development tax credit.
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R&D tax credit consultants: What to expect
Working with a professional R&D tax credit advisor is the best way to determine eligibility and maximize your benefit. Here is what you can expect by selecting Clarus R+D as your R&D tax credit consultants:
- Clarus R+D provides a team of professionals with expert credentials able to answer all your R&D tax credit questions.
- Our proprietary software streamlines R&D studies which maximizes your ROI.
- Clarus has expert knowledge of the IRS regulations relating to the research and development tax credit, IRC Section 41, as well as the regulations pertaining to state-specific research and development credits.
- Clarus has extensive experience in recognizing qualified research activities and expenditures.
- Our time-proven methodology has yielded maximum benefits to our clients.
- The Clarus team has helped hundreds of clients claim millions in R&D tax credits.
- We place emphasis on helping growth businesses take advantage of the tax incentive.
- Clarus does the work for you; our web-based app allows you to enter information at your own pace.
- We have extensive IRS and state audit experience and provide our clients with audit support.
- We have maintained an exceptional success rate in applying for the R&D tax credit.
- We work directly with our clients and their respective accounting firm and payroll processor.
- Our process saves valuable time and resources within the engineering and finance departments.
- Our fees are very competitive.
- Our performance, success rate, and unparalleled quality of service result in high client loyalty.
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ABOUT CLARUS R+DWith custom software backed by a team of tax experts, Clarus R+D specializes in tax credits for growth businesses. Our technology-driven solution simplifies the process, maximizes benefit, and ensures compliance. We partner with accounting firms, financial advisors, investors, payroll providers, and more.