Los Angeles — The U.S. Senate Committee on Finance voted on July 21, 2015, to approve a suite of tax benefits that expired at the end of last year, including the Research & Development (R&D) Tax Credit and the Section 179D tax deduction for energy-efficient commercial buildings. These tax incentives are among the most successful programs available to U.S. businesses, and have been instrumental in allowing thousands of architecture and engineering firms to grow and thrive in a highly competitive global marketplace. The bipartisan vote from the Senate marks a significant advance towards the renewal of more than 50 federal tax incentive programs.
The R&D Tax Credit is a tax tool that is frequently overlooked by architecture and engineering firms due to a mistaken assumption that their work does not qualify as “research and development.” The professional services industry alone claimed more than $2 billion in R&D credits in 2012. However, it is estimated that up to 30 percent of businesses that qualify for the R&D tax credit fail to take advantage of this benefit.
“The R&D tax credit has been around for more than 30 years, but many architecture and engineering firms still lack awareness of the substantial benefits they can receive,” said Linn Cook, Vice President of Sales and Marketing at Apex Advisors. “When we looked at our client base, we found on average that architecture and engineering firms earn more credits per revenue than manufacturing companies, due to the design-rich activities in these firms.”
Furthermore, important additions in the proposed bill include a provision that would allow the R&D credit to be claimed against the Alternative Minimum Tax (AMT), as well as a provision for startup firms to claim the R&D credit against their employment taxes, making the credit more accessible to smaller, privately-owned companies.
Another meaningful revision in the proposed tax extenders bill that benefits architecture and engineering firms is the Section 179D tax deduction for energy-efficient commercial buildings. While the primary beneficiaries of this tax deduction are owners of commercial buildings, the $1.80 per square foot deduction can be allocated to the designers of government-owned buildings. A key change proposed in the bill would further extend this allocation for buildings owned by Indian tribes and non-profit organizations.
“The Senate Finance Committee’s bipartisan passage of these tax extenders bolsters their status as valuable and necessary tools for businesses,” said David Ahn, Partner at Apex Advisors. “The R&D tax credit and the 179D tax deduction are important financial tools for our architecture and engineering clients, saving them hundreds of thousands of dollars a year and providing them with tangible incentives to be innovative.”