One of the most critical aspects of the aerospace industry is research and development (R&D), which plays a pivotal role in driving innovation and ensuring long-term competitiveness. Aerospace companies worldwide employ skilled designers, engineers, and scientists dedicated exclusively to researching and developing advanced aircraft and innovative aerospace technologies. These R&D departments are not only expanding in size but also influence, becoming integral to the strategic planning and operational success of aerospace firms.
As the industry evolves, the output of R&D efforts is proving increasingly vital to maintaining a competitive edge in a context characterized by rapid technological advancements and dynamic market demands. The aerospace sector is notorious for its intense competition and, to remain at the forefront, companies must continually innovate, often investing substantial resources into developing new aerospace technologies, such as next-generation propulsion systems, advanced materials like composites and alloys, and groundbreaking avionics.
Firms that can successfully create and implement a robust pipeline of innovative aerospace technologies over several years are better positioned to outpace their competitors. This focus on R&D not only enhances product reliability and performance but also allows companies to respond proactively to regulatory requirements and shifts in consumer preferences, ensuring their longevity and success in this ever-evolving industry.
The industry is undergoing a significant transformation, driven by advances in digital technologies, strategic investments, and a growing emphasis on workforce development and supply chain visibility. Aerospace and defense companies are actively integrating digital technologies and artificial intelligence to tackle some of the longstanding challenges they face.
According to the Space Foundation, the global space economy totaled $570 billion in 2023, reflecting an annual growth rate of 7.4%. This growth aligns with the estimated compound annual growth rate of 7.3% over the next five years, driven by the commercial sector. In the same vein, according to a report by the World Economic Forum, the Global Space Economy presents an opportunity worth $1.8 trillion by 2035, which reinforces the importance of R&D in this sector.
However, the new tariffs imposed by the Trump administration have created a climate of uncertainty: with supply chains in other countries affected, many companies have opted to take emergency measures and consider alternatives that could remedy and manage the situation, such as possible tariff exemptions on specific materials and parts.
In the defense sector, U.S. industry has minimal exposure to the new tariffs but may face retaliation risks from other countries. The Department of Defense may need additional funding to cover higher costs for imported materials, which could impact existing contracts, and U.S. defense products rely on critical materials, many of which are imported. New restrictions on the export of rare elements imposed by China could impact the U.S. ability to produce defense systems.
TechForge (fictitious name) is a company that specializes in and possesses expertise in product and process development services across several sectors, including electrical and electronic, mechanical, civil, and aerospace engineering. To maintain competitiveness in the market and meet the evolving needs of its clients, the company made a strategic investment in 2018 aimed at developing new products and processes. This initiative encompasses the creation of satellite components utilizing thermal insulation technology based on multi-layer insulation (MLI), which consists of a high-performance insulator that utilizes multiple layers as a barrier against heat transfer from radiation. This design restricts energy (heat) flow, reduces heat loss through thermal radiation, and ensures the proper functioning of electronic components within their nominal limits.
In addition to the real case presented, it is important to note that if your company invests in certain innovative activities, you may qualify for R&D Tax Credits, which can significantly reduce your tax liability. Some of these eligible activities include:
By investing in these areas, your company not only advances technological frontiers but also positions itself to benefit from substantial tax incentives through R&D Tax Credits.
As you can see, research and development serve as the backbone of the aerospace industry, fueling remarkable innovations that set it apart. As the sector undergoes continual transformation, the value of investing in innovative technologies and innovative processes becomes more pronounced. Fresh ideas and exciting projects are emerging from every corner, opening a world of possibilities. In this dynamic era of growth and technological advancement, the urgency to stand out and explore diverse avenues for innovation becomes even more critical.
In this sense, FI Group’s expertise in its more than 10 years of working with tax incentives allows for a cohesive and efficient identification of all the characteristics involved in R&D projects in different sectors, including aerospace, becoming a partner in identifying and obtaining R&D credits for your company. If you are interested, talk to one of our experts and find out more about the opportunities in the sector.
Amid the daily demands of business and various obligations, tax responsibilities can easily be postponed, giving the impression that they can be managed later. However, leaving these matters to be addressed later can result in substantial losses and delays, hindering your business rather than supporting it.
A particularly critical area that requires timely attention is related to a Research and Development (R&D) study. Waiting until the last minute to begin this process is fraught with risk: not only does it increase the likelihood of overlooking essential details, but it can also significantly reduce the amount of tax credits available. By preparing in advance, you ensure that your company can fully capture the benefits available through these credits, thereby supporting its financial health and growth initiatives.
Preparing and filing taxes is not a quick process and can take a lot more time than you might think. A comparable situation occurs with the Research and Development Tax Credit (RDTC), because to successfully claim the RDTC, companies must follow a structured process that involves conducting a thorough R&D study. This study requires the collection of comprehensive supporting documentation that demonstrates eligibility for the credit. By anticipating this process and gathering the necessary information in real-time during R&D activities, companies can expedite their claims. Waiting until after the year is over to collect this information often complicates the process and can result in key details being missed.
Proactively planning for the RDTC study not only increases the likelihood of claiming a larger tax credit but also provides greater certainty in filing. By staying organized and diligent about filing, companies can ensure that they are fully prepared when the time comes to file, thereby increasing confidence in the value of the credit.
If your company prepares audited financials, identifying your R&D activities and credit information before year-end ensures that it is accurately captured in your annual returns. This increases transparency and provides a more comprehensive financial perspective for stakeholders.
Calculating your R&D credit early helps refine your overall tax strategy, allowing you to effectively allocate resources and take advantage of related incentives while avoiding surprises during filing season. To maximize the benefits, it is essential to begin the study early and allocate sufficient time to thoroughly assess and document all qualifying projects and expenditures.
Understanding the value of your Research and Development (R&D) tax credit before the end of the fiscal year or in advance can be crucial for your business. By determining this value in advance, you can unlock additional funds that can be strategically reinvested. This could mean allocating resources toward innovation projects, expanding your workforce through new hiring initiatives, or supporting other key strategic ventures that align with your long-term goals.
When it comes to taxes, procrastinating is never the best option: haste can often be the enemy of perfection. Unforeseen events can occur in your company, disrupting your process of preparing and submitting documents. This may increase the likelihood of making mistakes or missing deadlines.
Waiting until the last minute to initiate an RDTC study is risky and can result in a significantly reduced credit amount. In such cases, companies may overlook valuable expenses or qualifying activities that they could have included in their claims. A rushed study may fail to capture the full extent of research and development efforts, resulting in an under-optimized credit or even without the necessary substantiation for the correct application of the credit.
While some people may often work in a rush, there is no assurance of success in hurried preparations. Ultimately, it is better to be safe than sorry.
By completing your R&D credit analysis in advance, you position yourself with the possibility to incorporate these valuable credits into your quarterly estimated tax payments, provided you follow the regulations and procedures required to do so. This strategic move not only makes it possible to reduce your current tax liabilities but would also enhance your cash flow, providing you with greater financial flexibility in the months leading up to the tax filing deadline. Acting now can lead to significant benefits when comes time to settle your tax obligations, but again it is important to emphasize that all amounts related to R&D Tax Credit must be traceable and the actions must be aligned and carried out in compliance with the procedures, documentation and regulations established for this purpose.
Meeting deadlines, managing taxes, and handling documentation can be overwhelming, especially when trying to keep track of all the details. However, innovation is crucial for keeping your company competitive and in sync with market trends and public expectations: this is why seeking specialized assistance is a valuable option.
FI Group has a team of over 1,400 qualified professionals, including experts from various fields. Our dedicated team is focused on guiding businesses like yours through the intricate landscape of the R&D tax credit process. We understand the nuances involved and are committed to helping you uncover and claim every eligible benefit. With our expertise, you can be confident that you will not miss out on significant savings that could benefit your company’s growth and innovation.
Named this way for the first time in Article 71 of the United Nations Charter, Non-Governmental Organizations (NGOs) encompass a wide range of activities that contribute to social change and community development and are defined as non-profit entities independent of government influence.
One of the primary roles of NGOs in a country is to act as advocates and agents of social change, working for policies and legislation related to the communities they serve – usually minority social groups or those focused on environmental protection, social justice, education, health, and development.
Approximately 1.5 million NGOs operate in the United States and engage in a wide range of activities. Their funding sources include donations from private individuals (both U.S. and foreign), private for-profit companies, philanthropic foundations, and grants from federal, state, or local governments.
While the terms “NGO” and “nonprofit” are often used interchangeably, it’s important to understand the distinctions between them. All NGOs are categorized as nonprofits, but not all nonprofits qualify as NGOs. In the United States, nonprofits refer to organizations that do not aim to generate profit beyond what is necessary to pay staff and support their programs. These organizations are structured without public shareholders or stocks and benefit from tax-exempt status as defined by the U.S. tax code.
NGOs typically operate under classifications such as 501(c)(3) or 501(c)(4) within the nonprofit sector, allowing them to remain tax-exempt. However, the term nonprofit encompasses a broader range of organizations, many of which do not necessarily align with the civil society mission that characterizes NGOs. For instance, churches are considered nonprofit organizations but are not typically classified as NGOs.
Blending these terms is common, particularly among those unfamiliar with the sector’s nuances. However, awareness of their differences is essential for clarifying organizational purposes and structures.
According to reports from the past decade, NGOs have been instrumental in the dissemination of health responses in the United States, with global health activities operating in the country in all major program areas, including:
According to the data, HIV had the largest number of NGOs and the largest share of funding, approximately $1.65 billion.
A list compiled by the National Institutes of Health (NIH) provides a clearer view of national and international NGOs currently operating in the scientific field and dedicated to Global Health Research.
The presence of think tanks – many of which are also NGOs – demonstrates their involvement in research and development (R&D). Think tanks are institutions dedicated to producing and sharing research, analysis, and recommendations that aim to communicate scientific information and data. They create a direct link between academia and society. Typically, think tanks are affiliated with universities, foundations, advocacy groups, and other organizations that generate research, often focusing on political, economic, and social issues.
In this way, it is possible to highlight the significant role that NGOs play in the social, political, and economic arenas, being fundamental players not only in advocating for social welfare and human rights but also in addressing critical issues such as poverty reduction, education, access to healthcare and environmental sustainability. Their multifaceted contributions span multiple sectors, demonstrating their adaptability and responsiveness to societal needs.
In addition to their advocacy efforts, NGOs facilitate community engagement and empowerment, allowing marginalized populations to have a voice in decision-making processes. They often serve as a bridge between citizens and government entities. Furthermore, a deeper understanding of their operations, methodologies, and impacts is vital to appreciate how these organizations drive meaningful change and promote communities and access to useful information.
If your company engages in R&D activities, you can count on us: we specialize in helping companies recognize innovation and secure funding for their Research and Development (R&D) activities through the comprehensive management of R&D Tax Credits. With over 1,400 qualified employees, including specialists from different fields, we are dedicated to supporting companies of all sizes and sectors. With our expertise, FI Group specialists can help your company identify the qualifying activities conducted and access the available benefits, optimizing your research and giving it even more space and investment.
Receiving a significant R&D tax credit refund can be exciting, but figuring out how to properly account for it in your financial records may feel overwhelming. You might be wondering: where does this refund go in your books? Should you apply it directly to payroll taxes or create a separate account? These are important questions, as the way you account for the refund can impact your financial statements and reporting clarity. But don’t worry, we’ll show you how to correctly record the refund, making sure your records are clear and follow the rules.
Here is what we will cover in this article:
When it comes to recording your R&D tax credit, there are two main accounting methods: cash basis and accrual basis. Choosing the right method depends on how your company tracks its financials and what works best for presenting accurate statements.
The cash basis method treats the R&D tax credit as an immediate, one-time entry when received. For instance, if your company receives a $40,000 tax credit refund while typically paying $25,000 in monthly payroll taxes, you would see a negative payroll tax expense in your books for that period. While this approach offers simplicity in recording, it can create significant fluctuations in your financial statements that might complicate financial analysis and forecasting.
In contrast, the accrual basis method takes a more sophisticated approach by distributing the tax credit’s impact across multiple accounting periods. Under this system, you establish a tax receivable account on your balance sheet to track the refund as it’s applied over time. This approach creates a smoother financial picture by making consistent, smaller adjustments to your payroll taxes. For example, instead of recording a single $40,000 credit, you might spread it across four quarters, reducing your payroll tax expense by $10,000 each quarter.
Most accounting professionals recommend the accrual method because it adheres more closely to the matching principle — a fundamental accounting concept that suggests recording revenues and expenses in the same period they occur. This alignment provides stakeholders with a more accurate representation of your company’s financial position and makes it easier to perform period-to-period comparisons.
Here’s how to accurately record your R&D tax credit using both cash and accrual accounting methods. Follow these steps to ensure your financial records are clear and compliant.
1. Recording the R&D tax credit using cash basis accounting. If your company uses cash basis accounting, the process is relatively simple:
While straightforward, this method can create inconsistencies in your financial reports, making it harder to track and forecast expenses.
2. Recording the R&D tax credit using accrual basis accounting. Accrual accounting provides a more balanced approach, spreading the benefit over several months. Here’s how to do it:
This method ensures smoother financial statements and provides a clear audit trail for stakeholders or IRS reviews.
Proper documentation serves as the foundation for accurately accounting for R&D tax credits. While meeting IRS requirements is the primary motivation, maintaining detailed records delivers additional benefits that extend well beyond compliance. Understanding the relationship between documentation and accounting practices will help your organization maintain accuracy and defend its financial positions.
Documentation creates a clear link between your R&D activities and their associated expenses, enabling precise categorization in your accounting system. When you maintain detailed records, you can trace each dollar spent back to specific research initiatives, ensuring that your journal entries accurately reflect the nature of your R&D work. This level of detail becomes particularly valuable during audits or financial reviews, as it provides a clear trail that validates your accounting decisions.
Your documentation system should capture several key elements that support your accounting practices.
To streamline your documentation process, consider implementing a structured system that integrates with your existing accounting practices. Setting up specific project codes in your accounting software allows you to tag and categorize R&D expenses as they occur, rather than trying to classify them after the fact.
Modern time-tracking tools can significantly improve the accuracy of activity logging. Look for solutions that allow employees to easily categorize their time by project and research activity while maintaining the level of detail needed for both accounting and tax purposes.
Regular review and updates of your documentation should become part of your standard accounting procedures. Consider establishing monthly or quarterly reviews to ensure all relevant information has been properly captured and classified.
Once you’ve accounted for your R&D tax credit, the next step is ensuring it’s properly reported to the IRS. Accurate filing is essential to avoid mistakes and ensure compliance. Here’s a simple guide to help you through the process:
1. Use IRS form 6765:
2. Include R&D credits in your financial statements:
3. Meet new documentation requirements:
Starting with the 2024 tax year, the IRS requires detailed breakdowns of R&D expenses by project and officer wages. Ensure your records include:
4. Coordinate with your accountant or tax professional:
Accurate filing not only ensures compliance but also maximizes the financial benefit of your R&D tax credit.
Don’t leave money on the table or risk compliance issues with your R&D tax credits. Our experienced team of tax and accounting specialists can help you maximize eligible credits while ensuring proper documentation and full IRS compliance. We’ll guide you through selecting the right accounting methods and implementing systems that protect your interests.
Before May 2023, R&D tax credits were largely out of reach for architecture firms. The IRS had strict criteria that excluded many activities common to architects, such as designing, testing, and improving building systems. However, a landmark ruling in May 2023 and subsequent changes in tax regulations have opened the door for architectural firms to claim these credits. This shift represents a significant opportunity for firms to reduce their tax liabilities and push innovation.
R&D tax credits are made to reward businesses for engaging in research and development activities. For architectural firms, this could mean receiving a tax credit for improving energy efficiency, testing alternative materials, or exploring innovative structural solutions. These credits can significantly offset the costs associated with such projects, with eligible firms potentially claiming 6.5% to 10% of their qualified research expenditures (QREs). For smaller firms or start-ups, this can also include payroll tax credits—a crucial benefit for those not yet profitable.
Now is the time for architecture firms to explore their eligibility and take advantage of this financial incentive. In the following sections, we’ll outline:
To qualify for R&D tax credits, architectural firms must meet specific criteria established by the IRS. The eligibility requirements ensure that only activities involving genuine research and innovation receive tax deductions. Here’s what your firm needs to know:
Meeting these eligibility requirements allows your firm to claim credits for specific activities, like developing energy-efficient designs or experimenting with innovative materials. By aligning your projects with IRS criteria and documenting them thoroughly, you not only reduce tax liabilities but also gain valuable insights into your firm’s capacity for innovation.
The IRS uses a four-part test to determine whether activities qualify for R&D tax credits. For architecture firms, understanding these criteria is essential to identifying eligible projects and ensuring compliance. Let’s explore how each part of the test applies specifically to architectural activities:
By aligning your projects with these criteria, you can confidently identify qualifying activities. Thorough documentation of how your projects meet each element of the test will strengthen your claims and make the process smoother. In the next section, we’ll provide a step-by-step guide to claiming these credits effectively.
Your first step is to review your architectural firm’s projects to determine which activities meet the IRS’s criteria for R&D. These activities shouldmust comply with the four-part test we have covered previously.
Examples of qualifying activities for architects include:
Create a checklist to ensure all projects are reviewed systematically. Collaborate with project managers and technical teams to identify activities that align with the IRS’s four-part test.
The IRS requires detailed records to substantiate your R&D tax credit claims. Lack of proper documentation is one of the most common reasons claims are rejected.
Here’s what to document:
Organize this documentation systematically. Use folders labeled by project name and ensure digital backups are available. This organization will help streamline the claiming process and make it easier to respond to potential IRS inquiries.
Next, calculate the costs associated with your R&D activities. The IRS allows specific categories of expenditures to be included in your claim:
Use payroll data, invoices, and other financial records to create an itemized list of QREs. Double-check all calculations to avoid discrepancies, and ensure you’ve excluded non-qualifying expenses like marketing costs.
The R&D tax credit process can be complex, especially for architectural firms new to this area. Consulting with a tax professional who specializes in R&D tax credits can help:
Look for a professional or firm with experience in architectural claims and check for client references or success stories to ensure their expertise.
The IRS offers two methods for calculating R&D tax credits:
Work with your tax professional to determine which method offers the highest benefit based on your firm’s financial history. For newer firms without substantial R&D history, the ASC method is often more practical.
Finally, file your claim with the IRS by completing the necessary forms:
Submit the completed forms with your corporate tax return. If you’re claiming payroll tax credits as a start-up, file Form 8974 (Qualified Small Business Payroll Tax Credit for Increasing Research Activities).
Double-check everything before submission to ensure accuracy and completeness. Errors can lead to delays or rejections.
Navigating R&D tax credits can be complex, but you don’t have to do it alone. FI Group offers specialized expertise in helping architectural firms identify and maximize their R&D tax credit opportunities. Our team of professionals understands the intricate IRS requirements and can provide tailored guidance to ensure your firm captures every eligible innovation while maintaining full compliance. If you’re looking to transform your research and design activities into potential tax savings, we’re here to help you through each step of the process.
When it comes to innovation, the construction industry is often overlooked. Many assume that research and development (R&D) tax credits are only available to tech companies or large corporations. This misconception leads many construction firms to miss a significant opportunity to cut costs and invest in improvements.
R&D tax credits are made to reward businesses that address certain challenges through innovation. For construction companies, this can include activities like developing new materials, improving project workflows, or designing unique structures to meet client demands. Even smaller firms can qualify if they engage in these kinds of improvements.
Today we will cover how R&D tax credits apply specifically to the construction industry, which activities and expenses qualify, and how your company can benefit from this tax incentive. Here is a detailed plan of what we will explain in this article:
R&D tax credits directly benefit construction companies that engage in innovative projects or solve technical challenges. These credits are not just for high-tech industries — construction firms can qualify if they perform activities that meet specific requirements.
In the construction industry, R&D often occurs during the development of unique designs, the testing of new materials, or the use of advanced techniques to overcome project limitations. For instance, if your team works on improving a building’s energy efficiency by testing different insulation methods or creating a custom solution to meet strict environmental standards, those activities could qualify.
What makes construction projects eligible is their focus on addressing uncertainty. This could mean experimenting with various methods to determine the most effective way to meet building codes or creating structures that perform better under specific conditions, such as extreme weather.
These credits can be applied to reduce your tax liability, offering financial support for your company’s innovation efforts. Even if you’ve already completed a project, you may still be able to claim for past qualifying activities.
When claiming R&D tax credits for construction projects, you can include specific costs known as Qualified Research Expenditures (QREs). These are expenses directly related to the activities that meet the eligibility criteria for the tax credit. Below is a breakdown of the main categories of expenses that can typically be claimed:
1. Wages. You can claim the salaries of employees who are directly involved in R&D activities. This includes:
For example, if your team experimented with new materials to improve a building’s structural performance, the wages for the workers involved in the design, testing, and analysis of those materials could be included.
2. Supplies. This category includes the cost of materials used in R&D projects. Supplies are defined as tangible items consumed or transformed during the research process. For construction companies, this could mean:
Keep in mind that any supplies not directly consumed during R&D activities — such as tools or equipment — are generally not eligible.
3. Contract Research. If you hire external consultants or subcontractors to perform qualifying R&D activities on your behalf, the payments made to these contractors may be included. Common examples include:
It’s important to ensure that these contractors’ activities meet the same eligibility criteria as in-house work and that your company retains some level of control or rights over the results of their research.
4. Testing and Experimentation Costs. Expenses related to testing prototypes or validating new designs can also qualify. For construction projects, this might include:
These costs are particularly relevant for construction companies that engage in experimental builds or require physical validation of new methods. For example, if your team develops a new structural component, the expenses involved in testing its durability or compliance with safety standards could be claimed.
5. Software Development. If your company develops or customizes software for specific project needs, those costs may qualify. For instance:
This is especially valuable in modern construction, where technology often plays a key role in problem-solving. If you design proprietary software to improve efficiency or integrate innovative techniques into your projects, the development costs for that software could be eligible.
To claim R&D tax credits successfully in any niche, your company needs robust and detailed documentation of eligible expenses and activities. This is not just about keeping receipts — it’s about building a clear narrative that demonstrates how your work meets the eligibility criteria.
Here’s what to focus on:
Good R&D documentation ensures your claim is defensible if audited and helps maximize your credits by accurately reflecting all qualifying expenditures.
There’s a lot of confusion about how R&D tax credits apply to construction, and it’s not surprising. These misconceptions often make companies assume they don’t qualify or think the process isn’t worth the effort. But a closer look shows that many of these beliefs just aren’t true.
One common misunderstanding is the idea that R&D credits are only for tech companies or industries like pharmaceuticals. This isn’t the case. The construction industry has plenty of innovation that qualifies, from designing more efficient systems to developing unique solutions for challenging projects. If your work involves solving technical problems, there’s a good chance it fits the criteria.
Another myth is that only large firms can take advantage of these credits. This leaves smaller construction companies hesitant to even explore the possibility. In reality, the size of your business doesn’t matter. The focus is on what you do, not how big your operations are. Small teams working on innovative projects are just as eligible as large corporations.
Then there’s the fear of claiming credits for projects that didn’t go as planned. Many companies think that if something doesn’t succeed, it can’t qualify. That’s not true. Experimentation and even failed attempts are part of the process, as long as there’s a clear effort to eliminate uncertainty and improve methods or outcomes.
A lot of firms also shy away because they think the process is overly complicated. It’s true that documentation is important, but it doesn’t have to be overwhelming. The key is keeping track of relevant activities and costs. With proper guidance, it’s entirely manageable.
Lastly, some believe only groundbreaking discoveries count. But R&D tax credits aren’t just about major breakthroughs. They also cover smaller steps forward, like improving a building’s energy efficiency or finding a better way to meet unique site conditions. These incremental changes are often the backbone of qualifying activities.
By clearing up these misconceptions, you can see that R&D tax credits are far more accessible than they might seem. For many construction firms, the opportunities are just waiting to be claimed.
Claiming R&D tax credits can bring significant benefits, but the process isn’t without its hurdles. For construction firms, these challenges often come down to misunderstanding eligibility, incomplete documentation, or underestimating the complexity of the claim process. Let’s break down some of the most common issues and how to address them.
1. Identifying qualifying activities
Many construction firms struggle to pinpoint which of their activities qualify as R&D. This is partly because the work often blends routine tasks with innovation, making it hard to separate the two. For example, creating a custom design to solve a unique structural challenge may qualify, but firms often dismiss it as “just part of the job.”
You need to recognize when your work involves experimenting with new methods, materials, or designs to eliminate technical uncertainty. Don’t forget to keep a clear record of these activities during projects.
2. Inconsistent or inadequate documentation
Without proper records, even the most innovative projects can fail to qualify. One of the biggest challenges construction firms face is tracking R&D-specific costs and activities. For example, employee time spent on R&D tasks may not be recorded separately from other project work, making it difficult to support a claim.
To avoid this, it’s essential to implement systems for tracking R&D-related work from the start. This can include time logs for employees, detailed notes on experiments, and records of materials used for testing. The more specific and organized your documentation, the smoother the claims process will be.
3. Misunderstanding state and federal rules
While this guide focuses on federal R&D tax credits, many states offer additional incentives. The challenge is that the eligibility criteria, rates, and documentation requirements can vary between state and federal programs. This creates confusion for firms that operate in multiple locations or try to maximize benefits by combining credits.
Working with a tax professional who understands both state and federal regulations can help ensure you don’t miss opportunities or make mistakes.
4. Fear of Audits
The possibility of an IRS audit can deter some construction firms from claiming R&D tax credits. While audits are rare, they do happen, and the fear of being unprepared stops many companies from pursuing a claim altogether.
The best way to address this concern is to build your claim on solid documentation. If you want to learn more about this, then check out our article about “How to handle an R&D tax credit audit”
Claiming R&D tax credits can seem daunting, but with the right approach, it’s a manageable process. Since we’ve already covered identifying and documenting eligible activities in detail, let’s focus here on how to turn those efforts into a successful claim.
Before you invest time in preparing a claim, conduct a thorough review of your projects. Focus on identifying the activities that align with R&D criteria, such as solving technical challenges or experimenting with new methods. If you’ve already reviewed how to identify qualifying work in the earlier section, this is where you put that knowledge into action.
We’ve discussed the importance of proper documentation. At this stage, make sure everything is consolidated and ready for review. Group your records by project, ensuring that employee timesheets, material receipts, and project logs are easy to access. This will streamline the next steps and make the claim process more efficient.
While some firms manage their claims internally, working with an R&D specialist who understands construction can save you time and ensure nothing is overlooked. A tax advisor familiar with both federal and state R&D programs can help verify eligibility, maximize your claim, and navigate any complexities unique to your industry. This is especially helpful if your projects span multiple states or involve subcontractor collaborations.
