The R&D credit is one of the most overlooked opportunities afforded to U.S. engineering companies, with the vast majority of eligible companies (and, in many instances, their CPA's) self-censoring away from the credit.
While many associate the research and development (R&D) tax credit with the technology, aerospace/defense and pharmaceutical industries, the engineering industry is often overlooked as an area for potential R&D credits. While identifying and documenting qualified research activities and expenditures taking place in these industries is generally more difficult than in traditional R&D-intensive industries, it can be well worth the effort for companies that perform certain types of projects. Because not all projects qualify, it is important to understand the R&D credit qualification criteria sufficiently to determine whether your company has enough potential R&D activity to warrant further investigation.
Many engineering firms employ professionals, including architects, engineers, general contractors and sub-contractors, to perform qualified research as part of their project activities. Qualified research is most often found in projects that present one or more technical challenges that must be overcome. The firms that provide the best credit opportunity are the ones that perform engineering and design work in-house.
If you think you have to be operating in a laboratory to qualify for R&D tax credits as defined by the Internal Revenue Code, think again. If your firm is in the engineering industry, there is a strong chance that you could benefit from an R&D Tax Credit study.