Architecture firms are in a unique position to claim R&D Tax Credits for everyday activities. Architects are tasked with taking an owner’s concept for a building and turning it into a constructible reality. This requires the development of designs that make the thousands of components required to construct a building to come together into a master set of documents. Of course, the process of doing so is fraught with uncertainty. Below is any overview of how an architectural firm can meet the tests required of the R&D Credit.
Business Component: Architects provide a qualified service operating under fixed-price contracts with clients (for the most part) and assume risk for technical failure. Numerous tax court cases have substantiated the fact that these types of contracts can meet the business component test.
Uncertainty: As mentioned, taking a building from concept to completion while working within budgetary and regulatory constraints presents a number of challenges for the architect. These uncertainties are not related to aesthetics design. Architects are required to develop plans that meet highly technical requirements demanded in modern building design and construction.
Experimentation: This is where architects excel. The systematic processes utilized by most firms including programming, schematic design, design document, and construction documents require designs to be built out in an iterative manner. On each project, architects will evaluate a number of alternatives systems and designs through this systematic process, which makes it easy to prove that the experimentation test has been passed.
Technical in nature: As mentioned, designing the thousands of components that go into a modern building is a highly technical endeavor.
Many of the practices and standards within the architectural industry make the day-to-day activities of an architecture firm a shoo-in for claiming the R&D Tax Credit. For many firms, a majority of architects’, intern architects’, and BIM/CAD technicians’ salaries can be claimed toward this credit. For every dollar of qualified expense, roughly ten cents of tax credits can be obtained. These tax credits provide a direct offset to income tax liabilities and can lead to refunds for past taxes paid when amending returns to claim credits for open years.
To assess the R&D Credit potential, please visit our R&D Tax Credit Calculator. The tax professionals at Diligentiam possess intimate knowledge of the architectural design process and can perform a painless tax credit study.
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