Engineering firms are strong candidates for the Research and Development Tax Credit. Most of the activities they perform create new or improve existing business components (products, processes, techniques, inventions, formulas or software), the business components are technological in nature, they eliminate some kind of uncertainty, and they go through a process of experimentation. Engineering firm owners or their financial departments are unaware that expenses related to designing and testing may allow them to claim the valuable Research and Development (R&D) Tax Credit. These firms continue to under utilize this tax incentive due to the misconception that R&D can only be completed within a laboratory by an employee wearing a white coat.
In the civil engineering field, engineering and design activities related to road design, bridges, water and wastewater treatment facilities, foundation and earthwork, retaining walls and structures, site development and infrastructure often qualify for the Research and Development Tax Credit. These activities are strong contenders to claim the tax incentive since they are technological in nature and create new or improve existing processes and designs. Services relating to surveying, soil and material testing, traffic engineering, subsurface evaluation and landscape architecture typically will not qualify for the beneficial tax incentive. A simple change in the landscape’s aesthetics won’t fulfill the criterion of the IRS Four-Part test.
For example, in the environmental engineering realm, remediation design, solid waste system design, drainage system design and flare station design will qualify for the R&D tax credit given that they go through a process of experimentation and eliminate some kind of uncertainty. Furthermore, services relating to site assessment and investigation, permitting and regulatory compliance don’t qualify for the R&D tax incentive. The activities stated above do not identify and evaluate alternatives, perform trial and error experiments or test results, thus they aren’t considered as having a process of experimentation.
Does your company perform any of these activities? Drop us a line! To learn more about the Research and Development Tax Credit visit the Indago website www.indagotax.com or email us at firstname.lastname@example.org.