All across the nation, Civil Engineering firms are regularly missing-out on millions of dollars in federal tax incentives!
Because none of us can know what we don't know - and this is particularly true of tax incentives - Civil Engineering firms fail to capture the money allocated for them. This is true in spite of the fact that these incentives have been signed into law and that hundreds of millions of dollars in tax credits are available. Firms are literally walking by money they don't even know is there.
Part of it is the poor naming of these government-created incentives. For example, the IRC Section 41 credit is named the “Research Credit”. By that title, it sound like the credit was created to provide funding for medical laboratories. That is far from the truth. In fact, the incentive is so broad that almost all U.S. based Manufacturing, Engineering, Software Development, and Fabrication firms qualify.
How much is available?
In our experience, Civil Engineering firms, on average, have approximately 25% of their total payrolls qualify for what is known as Qualified Research Expenditures or QDEs. For example, a firm with a $2,000,000 company payroll will have roughly $500,000 in QDEs. That level of research-related expenditure then translates under IRC Section 41 into roughly $25,000 – $50,000 in tax credits PER YEAR. And remember, firms are allowed to go back three years for this tax credit!
Why doesn’t the CPA just handle this?
Specialized tax incentives are technical and backed by a myriad of case law. That said, just like other professional advisers, no-one knows it all. Some CPAs do not have the time or the knowledge to investigate, determine, procure, and defend specialized tax incentives like the IRC Section 41 "research credit". Fortunately, we do.
How should Civil Engineering firms determine their qualification?
First, they should not file another tax return or remit the next quarterly estimated payment until they have consulted a specialist in this area. A true specialist will be able to provide a solid estimate of benefits through a brief consultation.
Don't let the government’s failure to name an incentive properly keep you from capturing your benefits in full. Nearly all Civil Engineering firms qualify for the IRC Section 41 credit. And remember, this is a credit....which is better than a deduction! If you would like an estimate of how much you are missing out on, please contact us.
Bruce Wing is the principal of Strategic Wealth, LLC, a financial planning and business consulting firm located on the north side of Atlanta, GA.
Entrepreneur, financial guy, husband and father of two great kids.