Architecture Firm Claims $188,000 in Tax Savings through the R&D Credit, Yielding Substantial Future Income for the Firm’s Owners
An architecture firm claimed $188,000 in tax savings through the R&D Credit for designing an energy-efficient school building. By using tax-efficient planning tools available to them and investing this amount in a life insurance retirement plan (LIRP), the tax savings could potentially yield over $14 million of tax-free income for the firm’s owners during the later years of their lives.
Benefit Illustration of R&D Tax Credit
An architecture firm in Washington was hired by a local school to design a new building that incorporated several energy efficiency measures. The school was seeking to reduce its utility expenses while promoting sustainability in the community. Completing this project required the architecture firm to evaluate innovative design techniques and find the best solutions to meet the school’s needs.
The project spanned several months and occupied a great deal of the firm’s time and resources. As a result, the firm was looking for ways to offset the costs it had incurred in designing the new school building. The architecture firm needed assistance in identifying and claiming tax incentives that could significantly boost its net profits through tax savings.
The architecture firm faced the following challenges as it developed designs for the new, energy-efficient school building:
- Determining what the optimal design of the building would be and the best way to implement it
- Identifying the proper materials to be used in construction
- Evaluating and testing designs using engineering principles
- Preparing documentation of the project in order to seize available tax incentives
Solutions to Minimize Tax through R&D Tax Credits
After partnering with the architecture firm and reviewing its project records, Capital Review Group (CRG) determined that the firm may qualify for the Research and Development (R&D) Tax Credit. This valuable incentive—which was recently expanded and made a permanent part of the tax code—offers a dollar-for-dollar tax credit to businesses in a variety of industries, including architecture.
In order to qualify for the R&D Credit, a business must:
- Intend to create new or improved functionality of a business component, such as a product, process, or software
- Seek to eliminate uncertainty about the activity’s design, process, method, or cost
- Perform a process of experimentation—which may include testing, modeling, or informal trial and error—with the goal of resolving the uncertainties
- Rely on the principles of engineering, biology, physics, or computer science in completing the process of experimentation
CRG found that the architecture firm satisfied these requirements based on its activities of developing and testing designs and evaluating other factors in the construction process, such as choosing which materials to use. Therefore, the firm was eligible for the R&D Credit. CRG guided the firm through the process of preparing the required documentation, including payroll reports and project lists.
Based on these qualifying R&D activities, the architecture firm was able to reduce its tax burden by $188,000 through the R&D Credit. These savings enabled the firm to offset the costs of the school design project and improve its bottom line.
How the R&D Credit Will Help the Firm’s Owners Build Future Wealth
Tax savings in the present can translate to a significant increase in net worth in the future. For example, if the owners of the architecture firm were able to repeat their savings of approximately $188,000 through the R&D Credit each year for seven years, they would save a total of $1,316,000 with this incentive alone. If the owners choose to invest this amount in a LIRP they could receive additional income of approximately $406,527 per year between the ages of 65 and 100—which may ultimately add over $14 million of tax-free income to their bottom line. This example illustrates why it is so important for business owners to seize all of the tax savings available to them.
Contact CRG to learn if your firm qualifies for R&D Tax Credits: 877-666-5539