Tax Incentive and Advisory Services for Architects, Engineers, and Contractors
As drivers of growth and innovation, businesses in the architecture, engineering, and construction industries may be eligible for significant tax savings based on their routine activities. Examples of incentives that may be available to businesses in these industries—yet are often underutilized include the §179D deduction for energy-efficient commercial buildings and the Research and Development (R&D) Tax Credit. At CRG, we provide tax incentive and advisory services for architects, engineers, contractors, and related professionals, drawing on our team’s unique combination of expertise in tax law and commercial buildings to help your business maximize the savings available to you.
179D Deduction for Energy-Efficient Commercial Buildings
Created with the goal of incentivizing sustainable design in commercial and public buildings, §179D of the tax code provides a deduction of up to $5.65 per square foot (indexed for inflation) for energy efficiency measures installed in new or existing buildings. For installed qualifying Energy Efficient Property (EEP). In December 2020, the §179D deduction was made as a permanent part of the tax code.
In addition to providing a powerful tax savings opportunity for commercial building owners, the §179D deduction is also available to the primary designers, including architects, engineers, green building consultants, and contractors of qualifying energy efficiency property in government-owned buildings and certain not-for-profit entities. The government or not-for-profit entities simply transfer their deductions to the primary designers through an allocation letter.
Third-party certification is required to claim the §179D deduction. As a leading third-party certifier, CRG helps primary designers review their projects and capture maximum tax savings through §179D. For example, we recently helped an architecture firm claim a §179D deduction of over $160,000 based on their design of an elementary school.
Research and Development (R&D) Tax Credits
As one of the most lucrative incentives in the tax code, the federal R&D Credit is often overlooked by eligible businesses that mistakenly assume the credit is reserved for large corporations or those involved in scientific or high-tech research. In reality, the R&D Credit is available to businesses of all sizes in a wide variety of industries, including architecture, engineering, and construction. Since 2015, the R&D Credit has been a permanent part of the tax code, and many smaller and newer businesses have been able to use it against their alternative minimum tax (AMT) or FICA payroll tax liabilities.
- Architects, engineers, and contractors may find that many of their day-to-day activities would be considered qualified research under the R&D Credit. For example:
- Creating designs that include energy efficiency measures or accommodate unique site conditions
- Determining the optimal building materials to use
- Performing engineering calculations
- Evaluating alternative design concepts through modeling, computational analysis, or an informal trial and error process
- And many others…
Work Opportunity Tax Credits
The Work Opportunity Tax Credit, or WOTC, is a general business credit provided under section 51 of the Internal Revenue Code (Code) that is jointly administered by the Internal Revenue Service (IRS) and the Department of Labor (DOL). The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025. The WOTC may be claimed by any employer that hires and pays or incurs wages to certain individuals who are certified by a designated local agency (sometimes referred to as a state workforce agency) as being a member of one of 10 targeted groups. In general, the WOTC is equal to 40% of up to $6,000 of wages paid to, or incurred on behalf of, an individual who:
- is in their first year of employment;
- is certified as being a member of a targeted group; and
- performs at least 400 hours of services for that employer.
The maximum tax credit is generally $2,400. A 25% rate applies to wages for individuals who perform fewer than 400 but at least 120 hours of service for the employer. Up to $24,000 in wages may be taken into account in determining the WOTC for certain qualified veterans. An employer cannot claim the WOTC for employees who are rehired. In general, taxable employers may carry the current year’s unused WOTC back one year and then forward 20 years.
At CRG, we have helped countless architecture, engineering, and construction firms claim six- or seven-figure tax savings through federal and state R&D Credits. For instance, one of our clients, a mid-sized engineering firm based in Phoenix, saved approximately $152,000 per year in federal R&D Tax Credits and $234,000 per year in Arizona R&D Credits based on activities such as developing environmentally friendly designs and testing different design concepts.
Is your firm capturing all tax savings available to you? The experts at CRG are here to help review your project records and identify opportunities to minimize your state and federal tax burdens. We will also work with your tax and financial advisors to develop a tax savings strategy customized for your business. Contact us today to schedule a free consultation!