Architecture and construction firms continue to under utilize the Research and Development Tax Credit due to a misconception of qualification and a fear of triggering an IRS audit. The good news is that these industries conduct qualified research activities on a daily basis and stand to take significant advantage of this tax incentive. Architecture and construction firm owners or their financial departments are unaware that expenses related to the development of unique, functional and energy efficient designs may allow them to claim the valuable Research and Development Tax Credit.
With the increase in sustainable and energy efficient designs incorporated into buildings, construction companies are investing more time, money and resources in a project’s design phase to achieve optimal results. Activities carried out by construction companies, such as: tasks aimed to increase efficiency in the construction process, LEED projects, new construction techniques, and construction material experimentations are recognized as qualified research activities. Construction management, oversight, labor or inspections are considered non-qualifying activities for the Research and Development Tax Credit.
Many activities required in the design and construction of a new structure are performed by architects and are considered qualified research activities (QRAs). Most of the QRAs in the architectural procedure can be divided into three phases:
- 1st phase: the allocation of space and space planning
- 2nd phase: the examination of the general concept of the structure, this is where the architect designs several schemes and creates models
- 3rd phase: the expansion and redesign of the scheme chosen by the building owner, this is where the architect takes into account the inclusion of diverse materials or energy efficient ideas.
- Aesthetic designs, feasibility studies, and project management are considered non-qualifying initiatives for purposes of calculating the R&D Tax Credit.