What You Need to Know About R&D Tax Credits

By Wesley Veigle, CPA

“What exactly is the R&D Tax Credit?”

It’s a long-standing federal incentive designed to reward companies for developing new or improved products and processes in the U.S. In the construction world, the “product” is generally a design, be it physical and digital.

The federal R&D Tax Credit can deliver up to 10 cents back for every eligible dollar spent on research activities, reducing tax liability dollar-for-dollar.  Several dozen states have their own Credits too, which can be stacked atop the federal version. 

“We’re architects/engineers/contractors. Could we really qualify for this?”

Quite possibly, yes. Research isn’t just lab coats and test tubes -- it’s the everyday problem-solving that drives construction, architecture, engineering, and design-build work.  The government considers a good deal of your day-to-day activity to be “research.” 

“What types of day-to-day work actually count?”

If your team is experimenting, iterating, or improving design and construction outcomes, you’re probably in R&D territory.

Examples include:

• Developing new or improved project designs
• Engineering or refining building systems
• Creating feasibility studies, master plans, or schematic designs
• Producing planning and elevation drawings
• Testing alternative designs to meet client goals, site constraints, or performance requirements
• Evaluating materials and systems to improve efficiency or sustainability
• Using CAD or BIM modeling to validate, refine, or test design concepts

A few points to keep in mind:

• The research doesn’t have to be groundbreaking -- small improvements may qualify.
• The research doesn’t need to involve an entire building – just improving a single system or component counts.
• Energy-efficient upgrades and sustainable design efforts frequently qualify today.

“So, what expenses could we claim?”

For most construction-adjacent firms, the main driver is wages. You can claim:

• In-house employee wages tied to qualifying work
• 65% of contractor costs for third-party services like CAD modeling, engineering, or testing

Those eligible expenses help generate the Credit, recouping capital which can then be used to expand your firm or support further innovation.

“We’re a small firm, just starting out.  Is there something here for us?”

Yes. Smaller firms may qualify for the Payroll R&D Tax Credit, created specifically for companies without income tax liability.

If your firm meets the definition of a Qualified Small Business (QSB) -- under $5M in gross receipts for the claim year and no gross receipts more than five years prior -- you may claim up to $500,000 per year (for tax years after 12/31/22).  The Credit may be used to offset payroll tax.

And you can claim the Payroll Credit for up to five years, offering a potential $2.5 million total benefit. For young firms, freeing up that much payroll cash can be a game-changer.

“How can I learn more?”

Just ask.  The Boyer & Ritter team is happy to help review your situation and explore your eligibility for this powerful incentive.   

About the Author

Wesley Veigle, CPA, is a director at Boyer & Ritter with experience providing tax and accounting services for closely held businesses, especially in the construction and real estate industries. Reach Wes at 717.761.7210 or wveigle@cpabr.com