The R&D tax credit is the most widely applicable and powerful tax incentive, but it’s not the only one AEC firms should take advantage of.
AEC industry business owners, and their CPAs and advisors, have become increasingly aware of several specialized tax credits and incentives that are available to them. For example, federal and state R&D tax credits have now been expanded to include many architecture and engineering design activities, in addition to certain activities conducted by contractors, even those activities performed pursuant to a client contract.
It is for these reasons, amongst others, that a $5.5 million annual gross revenue architecture firm is able to secure around $120,000 of federal and state R&D tax credits annually for architecture design activities on their education, healthcare, and commercial projects. Likewise, a $127 million annual gross revenue civil engineering firm that conducts design projects for land development, transportation, water/wastewater, and other civil applications is able to capture about $550,000 of annual federal and state R&D tax credits.
While the R&D tax credit may be the most widely applicable and powerful tax incentive for an AEC business to capture, it is not the only one. The Section 179D Energy Efficient Commercial Building Deduction, which is available for commercial building owners as a part of an overall accelerated depreciation strategy, is also available for AEC businesses that design certain systems of newly constructed, or renovated, government-owned buildings. This federal tax deduction can be as much as $1.80 per square foot depending on the results of the required energy analysis, so an AEC business with even just a modest government portfolio (whether federal, state, or local) can quickly accumulate a significant amount of deductions. For example, a multi-disciplinary architecture and engineering firm secured more than $750,000 of 179D tax deductions for its design work on only four projects for a local school district.
The Section 45L New Energy Efficient Home Credit is another powerful tax incentive for certain AEC businesses, most specifically residential home builders and residential real estate developers. This federal incentive provides a $2,000 income tax credit per new qualifying residential dwelling unit for the builder or developer upon the initial sale or lease of the unit. For a home builder selling hundreds of homes per year, this could quickly mean hundreds of thousands in annual tax savings. Likewise, residential developers constructing apartment complexes can also capture the tax credits upon completion of the complexes and their initial leases of the units.
So, how does an AEC business proceed with capturing the lucrative tax incentives they are entitled to? Certainly, the involvement of their CPA tax return preparer and other business advisors is critical, but all these specialized tax incentives require a certain level of design and engineering expertise. At a minimum, this expertise will ensure code and regulation compliance, but additionally, the right design and engineering expertise will help maximize the claims.
Therefore, seeking help from a niche tax consulting firm that, like BRAYN Consulting LLC, specializes in these design and engineering-based tax credits and incentives and also has in-house design and engineering expertise – including licensed professional engineers, engineers in training, LEED accredited professionals, certified home energy rating system raters, and other professionals with engineering education and backgrounds – is of utmost importance in seeking to secure these tax credits and incentives. Coupled with BRAYN’s in-house licensed attorneys and tax compliance professionals, this engineering expertise truly maximizes the supportable claims.
For example, federal and state R&D tax credits are activity-based and established through qualitative analyses of the facts and circumstances of the taxpayer to the qualification requirements. Having a tax consultant with design and engineering expertise who understands the design and engineering principles being used in the schematic design, design development, construction documents, and other design phases is critical.
For both the 179D and 45L tax incentives, energy models and savings’ analyses and calculations are required to be performed by licensed and certified professionals, which are even more of an engineering-type of analysis. Furthermore, having such expertise in-house like BRAYN (as opposed to outsourcing) is essential to ensuring that tax incentive claims are maximized.
These tax credits and incentives are very powerful, and since many AEC businesses are entitled to claim them by law, all prudent owners and officers should ensure they are fully assessed. BRAYN Consulting LLC is happy to provide any such business at no cost and no further obligation a Phase 1 assessment to help vet these opportunities, so that you can make an informed decision. Contact us at 888-773-8356 or info@brayn.com to learn more.
Brady Bryan is CEO of BRAYN Consulting LLC. Justin DiLauro is a partner at BRAYN Consulting LLC. Contact them at brady@brayn.com and justin@brayn.com.