By Shane Hunt, Senior Manager, Moss Adams LLP
The construction industry is no stranger to innovation. Projects that push boundaries can frequently qualify for R&D tax credits, but it’s important that the qualified activities and expenses are correctly identified and properly documented to support the credit. Here are some of the most common client questions we encounter on this topic.
What is the R&D tax credit?
The R&D tax credit is a dollar-for-dollar tax savings that directly reduces a company’s tax liability. There’s no limitation on the amount of expenses and credit that can be claimed each year. If the R&D credit can’t be used immediately or completely, any unused credit can be carried forward for up to 20 years. In addition, previously filed tax returns can typically be amended for up to three years in order to claim the R&D credit retrospectively, providing an avenue to recoup previously-paid taxes.
Who is eligible for the credit? How much can a company save?
New or small business may be eligible to apply the R&D tax credit against their payroll tax for up to five years starting in 2016. The R&D credit is available both at the federal and state level, with approximately 40 states offering an R&D credit to offset state tax liability.
The amount saved is based on the amount of expenses that are determined to be eligible for the credit, not the revenue generated by a company. Generally, we find the amount of credit to be approximately 5%–10% of a company’s R&D expenses during a given year.
What does the credit apply to? What activities qualify?
Innovation is key when it comes to R&D. Companies that take on technically challenging projects that require the design and development of new structures, building components, or various supporting systems often have expenses eligible for the credit.
Construction companies that are spending time, money, and resources developing new or improved products or processes could be eligible. Companies that take on design and engineering responsibilities, or are constructing something they haven’t attempted previously, often have qualified activities.
We’re Here to Help
While companies are often tempted to calculate credits on their own, there’s a considerable amount of knowledge required to identify and collect the correct information. The first step is to have an analysis performed on the types of projects your company is working on in order to identify eligible activities. You can request a complimentary credit benefit estimate to see how much your company could save, or download a complimentary copy of our Claiming the Federal R&D Tax Credit Guide. For more information on our construction practice and the services we provide, visit www.mossadams.com/construction.
About Moss Adams
Moss Adams is a national leader in assurance, tax, and consulting, serving a growing roster of construction industry clients, from large general contractors to specialty contractors. They provide the strategic business and financial planning, tax, and operational expertise clients need to stay competitive.
Shane Hunt has been in public accounting since 2008. He specializes in R&D tax credits and incentives for construction companies. Prior to joining Moss Adams, he worked for a private civil construction company as an estimator and project manager. Shane can be reached at 425-303-3031 or shane.hunt@mossadams.com.
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