Think You Don’t Qualify for the R&D Tax Credit?  Think Again. 

By Wesley Veigle, CPA

Contractors, Architects, & Engineers are Great Candidates for this Lucrative Incentive

When most contractors hear “R&D Tax Credit,” the reaction is predictable: That’s for people in science labs, not for people on the job site.

That assumption could be costing you serious money. 

The federal Research & Development (R&D) Tax Credit was designed to reward companies that solve technical problems through experimentation and iteration. In construction and design-build environments, that kind of problem-solving happens every single day.

For contractors, architects, engineers, and design-build firms doing custom or technically complex work, the R&D Tax Credit can generate a dollar-for-dollar reduction in tax liability year after year. In some cases, it can even offset payroll taxes.

This isn’t a loophole. It’s a permanent part of the tax code that too many folks overlook.

Why Construction Firms Often Qualify

A big part of the confusion comes from the word “research.” In tax terms, research doesn’t mean white coats and test tubes. It means working through uncertainty to develop or improve a product or process.

In construction, the “product” is generally a design, system, or method. If your team is solving technical challenges where the outcome isn’t known at the outset, you’re likely doing R&D.

Common qualifying activities include:

• Developing custom structural, mechanical, electrical, or plumbing designs
• Designing around difficult site conditions, space constraints, or performance requirements
• Engineering systems to meet energy-efficiency, sustainability, or code mandates
• Creating and refining BIM or CAD models to test design assumptions
• Evaluating alternative materials, assemblies, or construction methods
• Developing custom fabrication details or construction sequencing plans
• Iterating on designs that ultimately change, or even get scrapped altogether

That last one is important: the work does not have to be successful to qualify. If your team explored multiple options, tested alternatives, and refined its approach, that effort still counts as research, even if it was ultimately unsuccessful.

Routine, copy-and-paste construction doesn’t qualify. Custom, technical, problem-solving work absolutely can.

Who Should Be Paying Attention

The R&D Tax Credit is particularly relevant for firms including:

• Design-build general contractors
• Mechanical, electrical, and plumbing (MEP) contractors
• Civil and infrastructure contractors
• Architecture and engineering firms
• Specialty contractors working with steel, concrete, or fabrication
• Energy-efficiency and sustainability consultants
• Firms using BIM, CAD, or other advanced modeling tools

What Expenses Actually Generate the Credit?

For construction and design firms, wages are usually the biggest driver of the Credit. Eligible expenses may include:

• Wages paid to employees performing qualifying design, engineering, or technical work
• Wages paid to supervisors directly overseeing that work
• 65% of costs paid to third-party contractors supporting qualifying activities (such as outsourced engineering or modeling)
• Certain supplies used in prototyping, testing, or evaluation

The federal Credit generally returns 6% to 10% of qualified expenses, dollar-for-dollar against tax liability.  Plus, assuming you’re still performing qualified research activities, the Credit can be claimed year after year.   This means that you can rely on a regular influx of annual capital, and incorporate those funds into long-term planning. 

To put it into real numbers:

A firm with $1,000,000 in qualifying wages could see $60,000 to $100,000 in annual federal tax credits.  As long as they continue to perform qualified research, that $100K can become a renewable source of capital annually.   

Additionally, many states also offer their own R&D Credits, which stack on top of the federal benefit. 

What About Smaller or Newer Firms?

Smaller firms often assume the Credit is irrelevant because they aren’t yet profitable. That’s another costly misconception.

The Payroll R&D Tax Credit was created specifically for younger and growing businesses. If your firm qualifies as a Qualified Small Business, you may be able to apply up to $500,000 per year of R&D Credits against payroll taxes, for up to five years.

For firms investing heavily in talent, that payroll relief can free up much-needed capital to continue fueling growth.

“But We Already Filed Our Return…”

Not a problem. The R&D Tax Credit can actually be claimed retroactively by amending prior returns. If your firm missed the Credit in past years, those opportunities may still be on the table.

Concerns about audits are also common, but overstated. Claiming the R&D Tax Credit does not automatically increase audit risk. And when the Credit is properly documented, you can feel confident that everything is buttoned up.

Why Documentation Matters

Speaking of documentation, a strong paper trail is crucial when it comes to successfully claiming the Credit. Many claims fall apart, or never get filed at all, because the documentation isn’t solid enough. 

Relevant documentation may include:

• Payroll information
• General ledger or job costing reports
• Copies of contracts and invoices paid to third-party contractors
• Design revisions, blueprints, drawings, etc.

The right R&D Tax Credit professional will work with the documentation you have to ensure that your claims are fully supported. 

The Bottom Line

If your firm is doing custom design, engineering, or technically complex construction work, there’s a strong chance you’re eligible for the R&D Tax Credit.

Boyer & Ritter has deep experience helping construction and design professionals evaluate, document, and claim the R&D Tax Credit with confidence. Their team understands how construction projects actually work, and how to translate that work into a defensible, IRS-compliant Credit.

If you’d like to explore future possibilities, or you’d like to take a second look at prior year returns, let’s connect. 

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.