Research and Development Tax Credit: Common Missed Opportunities for Contractors

From McKonly & Asbury CPAs & Business Advisors

Ahh the Research and Development Tax Credit…one of the most overlooked tax credits for contractors! The R&D tax credit is a dollar-for-dollar reduction of a company’s tax liability, and it was made permanent in 2015 with the PATH Act.

To qualify for the credit, you must have “qualified” research and development expenses. This is what usually holds most people back, thinking they don’t qualify for the credit because they aren’t doing anything deemed “innovative” enough. However, if the work being done requires design and development of new structures and building components, or you’re taking on design and engineering responsibilities, it may very well qualify for the credit and is worth taking a closer look at. Expenses that go into the calculation include salaries and wages, supply costs, and contractor costs. Many design-build contractors see significant savings with the R&D tax credit.

So, if you’re reading this and thinking your company might qualify, the first step is getting a feasibility study done to give you an idea of possible R&D tax credits. If significant savings are found ─ good news ─ tax returns can be amended for the previous three years to take advantage of the credits.

Another piece that is often overlooked is state R&D tax credits. Many states, including Pennsylvania, offer state level R&D credits. After the analysis at the federal level is done, another analysis is done to determine state level expenses eligible for R&D. PA requires businesses to then apply for the credits and a certain amount is then awarded to each business.

Contractors ─ it’s worth it to at least have the conversation to see if R&D credits can be beneficial to you. Don’t leave these tax savings on the table! For more information on these services and more, be sure to visit our construction services page and don’t hesitate to reach out to Dan Sturm, Partner and Leader of our Construction Industry practice at [email protected]