This is a simple overview of the R&D tax credit for engineering firms, and companies that employ engineers to do research, design, and implementation. We will deal individually with several major areas of engineering including mechanical, civil, structural, environmental, and electrical engineering. This article is intended to give a basic overview of the ways in which businesses working in these areas of engineering can qualify for the R&D tax credit. For a more comprehensive understanding of how the R&D tax credit for engineering firms works, you might consider consulting a company on our list of services.
Because of the wide variety of work done by engineering and construction firms, determining what work qualifies for the R&D tax credit can be complicated. Some engineering fields are more straight-forward than others. Companies in general engineering, environmental engineering, mechanical and industrial, electrical, computer, and civil engineering can all take advantage of the R&D tax credit in different ways.
Engineering firms that work closely with the construction industry can often claim the R&D tax credit for things like green building design or LEED certification, energy efficiency design and improvement. Structural engineering research to help buildings stand up to natural disasters like earthquakes, fires, hurricanes, and floods may also be eligible. Engineering firms that do applied research that pioneers new designs for HVAC systems, plumbing, lighting, or drainage can also qualify.
The best clues as to whether or not a project qualifies for the R&D tax credit often lie within the contract. For instance, a fixed price contract can satisfy the financial risk requirement of the credit, whereas cost-plus contracts are considered to be funded research and thus would not meet this requirement. The technological in nature requirement is another one that can cause problems as it can often be difficult determine whether or not a specific project will meet this standard. This is why in most cases it is best to consult a specialist.
Engineering firms and companies that use engineers in the context of mechanical and industrial engineering have it easier. The technological in nature requirement is easier to fulfill, as is the financial risk requirement (if the design fails, there will be a financial loss). It does get more complex if an engineering firm is acting in a third party capacity, but as long as the entity doing the research is at financial risk, the requirement is met. It is important to remember that it’s not just product design that can qualify for the R&D tax credit. Research intended to improve production methods often qualifies. So whether your firm or company is creating or improving products, or creating or improving on production methods, chances are some or all of that research and development will qualify for the R&D tax credit.
Civil engineering research on the development and improvement of buildings and infrastructure often qualifies for the R&D tax credit. Some of the projects that will qualify are ensuring bridge and highway design meet certain structural and drainage requirements, pavement, roadway, and street design having to do with infrastructure. Design of retaining walls, innovating technology in areas involving wastewater and renewable energy, and almost any other innovative designs involving both civilian and military infrastructure will qualify more often than not.
Electrical engineering often has it the easiest when looking to qualify for the R&D tax credit. Almost every area of a project can count including the creation of CAD drawings, electrical renovation, and the development of new electrical systems on fresh construction projects. Designing control systems, security systems, telecommunications systems, power supplies, robotic product development, and numerous other electrical engineering projects can qualify for the credit. Despite all this, many electrical engineering firms and companies that employ electrical engineers assume they don’t qualify for the credit because they aren’t in manufacturing or software. It only makes sense for any and all electrical engineering firms and companies that employ electrical engineers to have an R&D tax credit study done to determine their eligibility.
Environmental engineering may not qualify as easily as electrical engineering but there are many types of projects within the field that qualify. These types of project include site remediation, designing drainage systems, brownfield redevelopment, and landfill gas extraction. Many environmental engineers have turned their attention to developing technologies that can mitigate and reverse the effects humans have on the environment, and those sorts of projects often qualify for the R&D tax credit.
Structural engineering bears some similarities to civil engineering, and the differences are rather nuanced. The areas in which structural engineering projects qualify for the R&D tax credit are somewhat different. Just a few of the types of structural engineering projects that qualify for the tax credit are determining possible alternative materials for a structure, improving alternative ventilation or water flow and plumbing systems, and developing pilot plants in a wide variety of industries.
Because engineering is such a broad field, it can be difficult for companies to figure out their R&D tax credit eligibility on their own. But not just any tax agency will suffice. It’s important when seeking the advice of specialists in the R&D tax credit for engineering firms specifically. If a prospective service offers R&D tax credit studies for engineering, make sure they have specialists in each of the major areas of engineering in which your firm engages. The good news is that there are many companies that do have specialists on the R&D tax credit for engineering firms.
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