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R&D Tax Credit Underutilized by Construction Contractors

AAFCPAs would like to make construction clients aware of potential tax savings that are available to contractors through the use of Research & Development (R&D) Tax Credits.

The R&D Tax Credit is a government-sponsored tax incentive that rewards companies for conducting R&D in the United States. It is a common misconception that the R&D credit is only available to scientists and medical researchers working in a lab, thus, many contractors are unaware of the expansiveness of activities qualifying for the credit.

The R&D Tax Credit is available to any business that attempts to develop new, improved, or technologically advanced processes. Many of the activities conducted by contractors and subcontractors in the construction industry qualify for the credit.

The R&D Tax Credit was first enacted in 1981. It was expanded to benefit small businesses and start-ups and made permanent as part of the PATH Act of 2015. The R&D tax credit may apply to any taxpayer that incurs expenses for performing Qualified Research Activities (QRA) on U.S. soil. Many states also allow an R&D credit, which can result in sizeable tax savings.

Examples of Qualifying Research Activities for Contractors

  • Design-build projects
  • Value Engineering
  • Improvements to a building’s energy efficient and sustainable designs (including HVAC, electrical, and plumbing)

The R&D Credit may be a dollar for dollar savings against your business or personal liability, depending on your entity structure. Depending on the size of your company and activities performed, the R&D credit may be extremely advantageous, especially as it may be applied retroactively to the 3 previous tax years to recoup previously paid taxes.

If you have questions, please contact Stephen Lanza, CPA, MSA at 774.512.4171, slanza@nullaafcpa.com; Dan Stanhope, CPA, at 774.512.4134, dstanhope@nullaafcpa.com; or your AAFCPAs Partner.

About the Authors

Lanza-Stephen
Steve provides proactive tax and business advisory services to private, closely-held businesses in a variety of industries, including: construction, manufacturing & distribution, and retail. He specializes in providing federal and state tax planning & compliance for C Corps, S Corps, partnerships & their owners. He advises clients on year-end and multi-year tax planning, including: guidance related to changing tax code; monitoring and forecasting of income and operations in order to avoid year-end surprises; historical and current year activity to ensure accuracy and completeness of federal and state filings; opportunities to maximize federal and state tax credits; and minimizing the impact of the Alternative Minimum Tax (AMT).
Daniel Stanhope CPA, MSA
Dan leads high-energy engagement teams in providing assurance solutions to clients across a wide variety of privately-held, commercial industries, including: Construction, Cannabis, Manufacturing & Distribution, Professional Services, Architecture & Engineering, and Insurance. He offers detailed reports about audit findings and communicates business-critical information to management, positively impacting their decision making.