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Saving Money While Savings Lives: The R&D Tax Credit

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by Brian Aumueller, alliantgroup Managing Director
December 18, 2019


A study by the National Fire Protection Association found that from 2013 to 2017, U.S. fire departments responded to an average of more than 354,000 structure fires each year that caused thousands of deaths and injuries.

Further, the U.S. Fire Administration has seen an increase of fire related deaths since 2008. If anything, this shows the sheer importance of those working in the fire safety and security integration fields having the resources needed to innovate on a daily basis.

Our buildings, whether residential or commercial, need to be able to effectively signal danger to occupants so that we begin to see a decline in injuries or worse, casualties. The answer? More innovation. However, some might be wondering how the businesses working on these types of innovations can get access to all the tools and resources they need.

Luckily, Congress has supplied a powerful government incentive that has helped thousands of U.S. businesses take in the capital they need to innovate and compete at a higher degree.

The Research and Development Tax Credit (R&D Credit) was enacted to encourage U.S. businesses to innovate and help our country’s economy thrive and remain a worldwide powerhouse. The idea was to reward these American companies for the time and resources exerted in order to help push their respective industry forward.

The R&D credit has greatly expanded over the years through judicial activity and legislative changes, including the most recent change, which got rid of the corporate Alternative Minimum Tax (AMT) and curbing the number of pass-throughs subject to individual AMT.

This expansion has kicked open the door for businesses of all sizes and created an opportunity for them to step forward and claim the credit, which in turn can be used to continue their important work.

For example, the PATH Act made the credit a permanent fixture of the U.S. tax code, making it so the businesses of our country can wholly rely on this valuable reward. The credit was also opened to startups through the startup provision, which allows businesses with gross receipts of less than $5 million a year to claim the credit (which is capped at $250,000) against their payroll taxes.

One of the primary shortcomings of the credit was that newer companies, which are more likely to take risks and invest in improving their products and processes, weren’t able to take advantage of the incentive.

A second change came with the AMT turn-off, which allows small businesses (defined as businesses with less than $50 million in gross receipts) to be able to claim the R&D credit against their AMT.

The AMT was the single greatest barrier preventing perfectly eligible companies from claiming the incentive. Now that the gate has been lifted, small to mid-sized companies working in the plastics industry are able to benefit heavily from its removal.

The money that these American companies have been able to take in from claiming the R&D Credit have gone toward several things that have helped elevate these businesses in their marketplace. From the hiring of new employees to the purchasing of equipment in order to strengthen the company’s ability to compete, these credits have done wonders businesses.

Simple enough. Nevertheless, how can fire and life safety, along with security integrators businesses specifically make use of the credit through its research and development activities? Whether it is the design of a development of a new sprinkler system, the retrofitting of outdated facilities or meeting regulatory compliance requirements, the activities that these fields involve are more than likely to qualify.

Here are some specific examples of fire protection and security integrator improvements, innovations and activities eligible for R&D tax incentives:

  • Development of new/ improved sprinkler designs or calculations
  • New or improved process for inspections, installations, maintenance or repairs
  • Retrofitting outdated facilities to meet existing codes
  • Integrating smart devices into network applications and overall security system solutions
  • Identifying system limitations and developing alternative design methods
  • Developing conceptual design, schematic design, and construction drawings for integration, installation and configuration of security system components
  • CAD developments of detailed design drawings of fire protection systems

All of these types of activities not only qualify, but were exactly the types of innovations that Congress was wanting to incentivize when it enacted the R&D credit. Whether you work in fire safety or security integration, the design, testing and implementation of your projects can lead to substantial credit returns.

One example of company taking advantage of the credit came when a fire protection company with a total annual revenue of $4.4 million utilized AutoSprink CAD applications to develop detailed design drawings of fire protection systems. The designers evaluated alternative hydraulics calculations to establish optimal pressures, flows and velocities for the sprinkler systems.

The designers also utilized CAD to test simulated models of sprinlers for performance and Building Information Modeling (BIM) was used to effectively design piping around existing utilities, accommodating custom dimensions. Technicians assisted the foremen with the development and installation of new or improved products, resolving challenges in each fire protection system, with all of these activities leading to $125,000 in federal R&D Credits.

A second example, this time from a security integration and solutions provider with an annual revenue of $30 million, designed a new alarm control panel for a theater. The company performed design-build and plan-specifications for their client to replace the previous alarm intrusion system. Through all the testing and project iterations involved, the company was able to claim more than $600,000 in federal credits.

This is capital that both of these companies now have at their disposal to hire and retain top talent, purchase equipment and reinvest in themselves in order to become more competitive in the coming year.

Those who work in fire safety and security integration know better than anyone else how serious the work is simply because lives are at stake. The more that these fields innovate the safer our country is.

One solid step that these industries can take to ensure that innovation continues is to step up and claim this powerful government incentive that was put in place to encourage progress.

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Brian Aumueller is a Managing Director for the Northeast Region and is based in alliantgroup’s New York office. Brian and his team work with CPA firms and businesses within the region to spread the word on the valuable federal and state tax credits and incentives available to U.S. businesses. Brian and his team have delivered over $51 million in tax credits and incentives to U.S. businesses.