In the world of tax accounting for business owners, some tax credits and deductions tend to be more overlooked than others. Just about everyone knows about itemizing mileage and taking advantage of depreciation schedules, but R&D tax credits tend to be woefully overlooked. Any CPA for Architectural Engineering firms will tell you that most of their clients are surprised to learn about their ability to claim tax credits for research and development efforts, but they cannot be blamed for not knowing; after all, they were only made part of the permanent Internal Revenue Code until 2015.
R&D tax credits for Architectural Engineering firms have actually been around since 1981, but their initial provisions were a bit nebulous. Before these R&D tax credits were promulgated on a permanent basis, they were subject to changes that may have been above the scope of accountants who handle bookkeeping for architects. As a taxation CPA for architects and other self-employed professionals, this is a credit that we certainly keep in mind.
The Basics of Tax Credits For Research & Development
Contrary to what many people think, R&D is not a business process that can only be conducted at a lab or dedicated facility. R&D tax credits for architects can be claimed on the basis of the work performed in terms of innovation. In the early 1980s, American economists urged Treasury regulators to pay close attention to industrial output overseas, particularly in markets such as Japan and Italy, where companies were taking chances and innovating as a result of careful evaluation and experimentation; this is when the Research and Experimentation tax credit was introduced, and it was largely an effort to avoid falling behind.
Best Practices: R&D Tax Credits for Architectural Engineering Firms
The gist of the R&D tax credit is that Qualified Research Activities must take place within the United States. Wages, supplies, and payments made to third-party entities for the purpose of research and development may be considered as expenses conducive to R&D. The activities must solve technological issues, improve business processes, resulting in efficient designs, or rely on scientific experimentation.
When the R&D tax credit was added to the Internal Revenue Code, the administration of former President Barack Obama was riding on the wave of Science, Technology, Engineering, and Mathematics promotion on a national scale. The last thing regulators wanted was a "brain drain," whereby American STEM professionals flock overseas to work in R&D projects because certain jurisdictions offer greater tax incentives.
R&D Within The Architectural Profession
Research and development activities are not the first things on the minds of professionals who normally handle accounting for Architectural Engineering Companies, but they should be. It is estimated that business entities taking advantage of this tax credit collectively save up to $10 billion each year, and there are provisions for small businesses to claim it. In the beginning, only automakers, computer manufacturers, and aerospace companies bothered to claim this credit; even now that it is available to a much larger segment of the economy, less than 35% of eligible businesses claim R&D credits.
You should not expect that a firm that merely takes care of bookkeeping for architectural Engineering firms will be familiar with the process of claiming R&D when the time comes to file annual tax returns. You will need a firm that provides tax planning for architects because an assessment of qualified research activities (QRA) will have to be made. With this in mind, here are some examples of QRA expenses for architects:
* Time spent evaluating blueprints and materials that comply with Leadership in Energy and Environmental Design (LEED) standards for green buildings.
* The development of schematic plans, elevation drawings, building systems, and plans that will result in sustainable working spaces.
Tax accounting for architects can be beneficial to navigate with a professional. Here at Fusion CPA, when we conduct tax planning for Architectural Engineering Companies, R&D is on our minds. We interview business professionals and staff members whose work may involve research and innovation. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
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