Architectural and Engineering (“A&E) companies often fail to realize that they can take advantage of the credit for increasing research activities (“R&D Tax Credits”) under Internal Revenue Code §41 without even being aware of the program. Some of the common misperceptions and areas often overlooked involve the following:
In response to the devastating hurricanes that struck the U.S. and its territories recently, President Trump on September 29, 2017 signed the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (HR 3823) to provide targeted tax relief for taxpayers impacted by Hurricane Harvey, Irma and Maria. Included in the legislation is an employee retention tax credit for qualified employers located within designated disaster areas related to the hurricanes. The tax credit is equal to 40% of qualified wages of up to $6,000 (a maximum credit of $2,400) for each qualified employee.
With the cost of doing business consistently on the rise combined with the increasing difficulty to find/retain great employees, there is no better time to pursue employment-based tax credits. There are both federal and state employment-based credits available that can help businesses offset income tax liability. Some of these programs are based on the creation of net new jobs, while others are offered to employers for employing individuals from specific target groups. The most popular of these programs is the Federal Work Opportunity Tax Credit (WOTC). The WOTC is a federal tax credit program that incentivizes employers to hire individuals who typically face barriers to employment such as ex-felons or Veterans. The tax credit can range from a maximum of $1,200 to $9,600 for each qualified new hire depending upon the new hire’s target category and there are currently 14 different target categories under which an employee may qualify. Many states also have targeted employment credits with similar qualification criteria as the WOTC that are commonly referred to as “WOTC piggy-back credits”.
The R&D tax credit provides benefits to companies of all sizes by improving overall cash flow, reducing your effective tax rate and decreasing your federal and state income tax liability, to name a few. The R&D tax credit has come into its own over the last decade, as new regulations, court rulings and IRS guidance have resulted in broader positions taken by companies to maximize, and benefit from, the credit.
Building energy efficient structures have direct cost benefits reflected in decreased energy bills; however, sometimes the tax credits associated with energy efficient buildings are overlooked. Incentive programs such as the 45L tax credit offer builders and developers the opportunity to maximize tax savings.
A&E firms perform many activities that qualify for the research credit, but there are some activities that qualify that building designers may not think are qualified. First, we will take a look at some of the more common activities that building designers perform that are taken as qualified activities for the R&D tax credit. Then, we will get into some of the less common activities, focused on hazard mitigation of building design, that are sometimes overlooked.
We see these announcements in the news more often these days – “Multiple states are vying for the opportunity to offer sizable incentives packages to Amazon as they announce plans to open a second headquarter location and expect to spend $5 billion and create 50,000 new jobs” or “Wisconsin plans to offer FoxConn (a major supplier to Apple for their iPhones) $3 billion of incentives of mostly cash incentives over 15 years to open their $10 billion plant in SE Wisconsin”. Although these are examples of some of the more high-profile companies and their “mega” projects, securing incentives from state or local authorities isn’t as farfetched as one may think; while they do require planning and forethought.
The Alternative Minimum Tax (AMT) is an additional income tax system created to prevent high-income individuals, corporations, trusts and estates from avoiding tax payments.
One of the most valuable tax credit programs overlooked by businesses is employment tax credits. Many companies believe they would not benefit from this tax savings strategy due to the background of employees they hire or the complexity of employment incentive programs.
Architectural and Engineering (“A&E) firms continue to be an industry that is growing significantly in the U.S. and their design and experimentation activities are of the nature that is eligible for the Research & Development (“R&D”) tax credit.