In September 1900, a Category 4 hurricane ravaged Galveston, Texas, killing more than 6,000 people and damaging nearly all of the city’s structures.
In the aftermath of the storm, city officials inspected the wreckage, and did the only thing they could to move forward: rebuild. But with a new perspective after tragedy, city engineers took it upon themselves to make sure the city didn’t face the same fate ever again, building a seawall that surrounded the town—and literally lifting the community’s elevation by 16 feet.
From bendable concrete that protects against hurricane-force winds to protection pumps that can control the impact of flooding, engineers have developed new and unique technologies to meet the needs of several communities. With engineering jobs being some of the fastest growing in 2018, and the knowledge that these natural disasters will not stop, there is significant potential for not only civil engineers, but all engineers, to innovate even more in the coming years.
Alongside an engineer’s ability to innovate, comes the financial means to do so. That’s where a powerful-yet-underutilized government incentive has come into play for engineering firms seeking to take their craft to the next level.
The Research & Development Tax Credit was enacted in the late 1980s in order to encourage domestic corporate innovation. The credit became permanent in 2015 after the passage of the Protecting Americans from Tax Hikes Act, and, despite its place in our intricate tax code, qualifying for the credit is more straightforward than companies usually think.
Although it often is the case with the work of engineers, qualifying activities for the credit do not necessarily need to be incredibly complex. In order to qualify for the incentive, an engineering firm simply needs to invest its time, money and resources into the advancement or improvement of one of its products or processes.
An engineering firm that qualifies for the credit through a qualifying research activity (QRA) can potentially receive a credit in the amount of a percentage of its qualified research expenditures (QREs) that are directly associated with the identified QRAs.
Simple enough. But how can engineering businesses specifically make use of the credit through its research and development activities? Whether it is the design of a new multifamily project, its parking or its surrounding infrastructure, an engineer’s practice is more than likely to qualify.
Here are some specific examples of engineering improvements, innovations and activities eligible for R&D tax incentives:
- Ventilation, plumbing, piping and refrigeration system configuration
- Process optimization evaluations
- Developing control system layouts
- Spatial configuration considerations
- Testing of components to determine vibration of equipment
- Determining alternative structural design
- Fluid dynamic analysis and design
- Development of control panel layout and operation
- Designing innovative access or motion controls for large-scale systems
- Programming Logic Control (PLC Programming)
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 are a civil, structural, municipal or mechanical engineer, the design, testing and implementation of your projects can lead to substantial credit returns.
One example of a company taking advantage of the credit came when an engineering firm whose annual revenue was $44 million took on a project to implement a building’s electrical and HVAC services. The company had to evaluate a linear accelerator and computed tomography scanner separately in order to design solutions capable of meeting manufacturer and client requirements for the project.
The firm’s work resulted in several technical challenges requiring the evaluation and incorporation of alternative solutions. The company’s work ultimately resulted in more than $500,000 in federal tax credits, all of which was eligible to be put back into the business.
A second engineering firm, whose annual revenue was approximately $71 million, provided structural engineering services for the development of a parking garage. The company determined a more sound way to insert a structural beam into the garage in order to make room for a gym and retail space. The development of this design not only allowed for optimal ceiling clearance and pedestrian use but also earned the company $650,000 in tax credits.
Engineering firms have the potential to reinvest thousands, if not millions, back into their business to remain competitive, grow and further innovate. Choosing not to take advantage of this incentive could mean bypassing an opportunity for company growth, or the chance to develop the next innovation to help our country weather the storm.
This article appears as it was originally published on our sister site, www.hiveforhousing.com.
About the Author
Brian Aumueller is a Managing Director in alliantgroup’s New York office with more than 20 years of experience providing consulting services to CPAs and their clients. Brian specializes in federal and state tax credits and incentives, managing CPA firm relationships, and helping CPA firms identify qualified clients.