Every day, the engineering sector leads the way in innovation by overcoming challenges and developing new solutions. Engineering projects naturally do research and development (R&D) at practically every stage of the project, including new design ideation, prototype development, and process development or improvement.
Some benefits of claiming the R&D Tax Credit are the following:
- Fund more R&D activity and create more jobs.
- Benefit from significant federal and state tax reductions in current and future years.
- Improve cash flow and have more financial resources for business growth and expansion.
Do your Engineering activities qualify for the R&D Tax Credit?
You may not recognize your daily activities as developmental or design-related activities eligible for the federal or state R&D tax credit, but regularly undertake qualifying work without realizing it during design or pre-construction.
Some examples of qualified activities are:
- Improvement of construction techniques for efficiency
- Bid time related to fine-tuning technical specifications and design requirements
- Developing or using computer-aided design (CAD) modeling and testing to assess designs
- Engineering, direct support, and direct supervision for the fixed fee jobs based on detailed time-tracking analysis
While many activities are qualified, there are some limitations to be aware of. The R&D credit does not apply to the following items:
- Research that has been funded
- Existing components that are duplicated or adapted
- Research performed after a design is commercially produced
- Contracts that guarantee complete payment for all time and materials
- Bid time unrelated to technical issues or related to jobs deemed funded
- Engineering time spent on jobs not meeting the “significant economic risk” and “substantial rights to development” standards
Applying the Four-Part Test
Eligible qualified research activities (QRAs) must also meet all the criteria established in the 4-part test:
- Permitted Purpose – Requires the project to fulfill a qualifying function that is critical to the business. The purpose can be to develop a new or improved product or process.
- Elimination of Uncertainty – The information needed must be aimed at removing any uncertainty about the development or improvement of a business component.
- Process of Experimentation – Implementation of a comprehensive method for identifying and evaluating potential solutions in order to attain the desired outcome
- Technological in Nature – The process of experimentation must rely on the hard sciences specifically engineering.
How can KPT Consulting help?
You may be able to claim R&D tax credits if your company has engaged in qualified research activities for the last several years. KPT Consulting can assist you in obtaining previously unclaimed credits, as well as defending past, current, and prospective R&D tax credits. With our services, you can be confident in securing and maximizing your R&D tax claim.
