Engineers apply cutting-edge scientific technologies to solve problems across every industry imaginable. From working to mitigate the effects of climate change, to developing new drugs to help fight the next global pandemic, engineers provide invaluable services to our society. In the rapidly changing world we live in today, it is vital for engineering companies to acquire the resources they need to meet our world’s growing challenges head-on.
Federal and state governments understand this necessity, which is why billions in R&D tax credits are given to corporations every year to help catalyze their research projects while maximizing their profitability.These R&D tax credits raise engineering companies’ bottom line,allowing them to continue doing what they do best – solve the world’s problems.
R&D Tax Credits in the Engineering Industry
The R&D Tax Credit was first introduced in the United States through the Economic Recovery Tax Act of 1981. With worries that the U.S. was falling behind in production and innovation relative to the global economy, the Economic Recovery Tax Act aimed to stimulate the U.S. economy and encourage investment within the United States. Though this tax credit was originally only anticipated to last for two years, the PATH Act of 2015 permanently extended the R&D Tax Credit due to the immense value that research and development brings to the U.S. economy each year.
How does an Engineering company qualify for the credit
There is a four – part test used to determine whether a company has a project that qualifies for the R&D Tax Credit. If you have a project that meets each of the four quadrants below, your project most likely qualifies
Technological in nature
- Discover information that fundamentally relies upon principles of Hard Sciences (i.e. Physical Sciences, Biological Sciences, Engineering, Computer Science, etc.)
- Not social, economic, or psychological Permitted Purpose
- Develop a new, or improve an existing, product or process
- Related to Functionality, Performance, Reliability, Quality, Significant cost, Savings, etc.
- Not Aesthetics
- Uncertain if able to achieve desired result
- Uncertain of optimal design or process to achieve project goals
- Goals to show there were issues and potential alternate solutions
Process of Experimentation
- Evaluate and test alternative design or process to identify optimal solutions
- Methods to use
- Systematic Process of Trial and Error Simulation
- Computer Science Testing (Validation, Beta, etc.)
Once a company determines that their project meets these criteria, three expense categories factor into the tax credit calculation:
All disciplines within the engineering industry are capable of qualifying for these R&D tax credits. Some of the major disciplines that routinely claim these tax credits each year include:
With the rise of big tech and the massive fortunes generated by software companies each year, computer engineering is perhaps the most fast-paced, dynamic industry in the United States. Startups and large software corporations, alike, are in a constant R&D battle to innovate the next big thing or be rendered obsolete. Qualifying R&D activities that a computer engineering company might partake in include:
Given how quickly the online landscape is constantly evolving, it is vital that a company involved in computer engineering and technology can take advantage of every tool possible to maximize their R&D budget while still remaining profitable. If you work within the tech industry, learn more about how R&D Tax Credits can put more money in your company’s pockets here.
Mechanical Engineers design, develop, build, and test mechanical and thermal sensors, devices, valves, and other mechanical components. Typical qualifying R&D activities undertaken by a Mechanical Engineering company might include:
The opportunities are endless – whether your company designs space shuttles or sewer pipelines, you are likely eligible to take advantage of the R&D Tax Credit.
It’s a common misconception that civil engineering companies are unqualified for the R&D Tax Credit since their projects typically involve constructing large infrastructure systems rather than developing a new product. However, many activities that a civil engineering company is involved with on a daily basis do, in fact, pass the four-part test. These activities may include projects like:
As a specialization within civil engineering, structural engineers design and assess major projects such as buildings, bridges, and dams to ensure their strength and durability. In addition to infrastructure, structural engineers are often involved with structural design within the manufacturing industry – they may work on an airplane or automobile frame, for instance. R&D within the structural engineering industry is widespread; a few qualifying activities may include:
As structural engineering is largely trial and error during the design process, almost every structural engineering project has a strong case for claiming the R&D Tax Credit.
Another specialization within civil engineering, geotechnical engineers analyze soil conditions for use in the design of building foundations, slopes, retaining walls, dams, and other structures. Similar to structural engineering, many of the research activities conducted by geotechnical engineering companies qualify for the R&D Tax Credit. Qualifying activities may include:
Chemical engineers apply principles of chemistry, biology, physics, and math to solve problems in virtually every industry. Whether it’s designing a chemical feed system at a water plant or developing a new method to refine oil or gas, many chemical engineering activities will qualify for the R&D Tax Credit. Some qualifying activities might include:
Since chemical engineering is an iterative process, the list of activities that qualify for the R&D Tax Credit are virtually endless.
Electrical engineers design, develop, test, and supervise the manufacturing and implementation of electrical equipment. They frequently conduct research and development activities including:
Claim your R&D Tax Credits Today
Whether you own a small business, work for a large corporation, or fall somewhere in between – if your company operates within the engineering industry there is a good chance that your projects qualify for R&D Tax Credits. LEAF Specialty Tax Consultants focus exclusively on helping companies like yours take advantage of R&D Tax Credits allowing you to continue to innovate while maximizing your profitability. If you’d like to begin the conversation and find out more about how we can help your company innovate and grow, contact us today!