Architecture and engineering (A&E) projects have the potential to save millions through various tax credits and incentives, as seen with a recent $13 million building conversion project in Syracuse, New York, that secured nearly $2 million in tax breaks.
Utilizing specific tax credits and incentives can be a powerful tool for supporting a project’s budget, as well as promoting economic growth and fostering sustainable development. To maximize the benefits and avoid missed opportunities, A&E firms must understand the best practices and risks associated with these programs.
Effective Strategies To Maximize Benefits
Identify Applicable Tax Incentives
Our tax professionals help A&E firms identify and apply for tax incentives that align with their business goals and mission, such as:
- Research and Development (R&D) Tax Credits: These tax credits are designed to incentivize companies to invest in research and development activities. A&E firms can claim R&D tax credits for activities such as developing new designs, improving existing designs and testing new materials. Considering the capitalization requirements around R&D expenditures, a detailed analysis of credit-eligible expenditures will provide the tools to develop a reasonable methodology to minimize annual capitalization.
- Cost Segregation: Cost segregation is a tax planning strategy that allows A&E firms to accelerate depreciation on property and equipment. By segregating assets into shorter-lived categories, firms can reduce their tax liability and improve their cash flow.
- Section 179D: This tax deduction is available for energy-efficient commercial buildings. A&E firms can claim Section 179D deductions for designing energy-efficient lighting, HVAC and building envelope systems.
- Energy Tax Credits: In addition to Section 179D, there are other energy tax credits available that A&E firms may take advantage of. These include tax credits for installing solar panels, wind turbines, thermal energy management, batteries and other renewable energy systems.
Determine Eligibility
Once the relevant tax incentives are identified, our team reviews the eligibility criteria to make sure a firm meets the requirements. While working on new projects, we also help determine any past or current projects that may be eligible for tax incentives. By identifying and applying for tax credits and incentives, A&E firms can enhance their projects, reduce their tax liability and ultimately improve their bottom line.
Maintain Proper Documentation
A&E firms should maintain proper documentation and records to support their application for tax incentives. This may include financial statements, tax returns and project specifications. Proper documentation is essential for demonstrating the impact of the incentives on the firm's financial position and compliance with the eligibility criteria. It can also help firms respond to any questions from tax authorities or other stakeholders.
Avoid Risks With Professional Help
When applying for tax incentives, A&E firms may encounter several potential risks, including:
- Lack of Eligibility
- Lack of Compliance
- Complex Application Processes
- Changes in Tax Laws
- Potential for Fraud
The application process for tax incentives can be complex and time-consuming, and tax laws and regulations can change quickly, potentially impacting eligibility and overall benefit. Additionally, tax incentives can be subject to abuse or misuse by businesses or individuals seeking to exploit the program for their own benefit.
To avoid these risks, A&E firms can work with tax professionals who specialize in the industry, maintain proper documentation and records, and comply with the eligibility criteria.
Partner With Tax Professionals
A&E firms should work with tax professionals who specialize in their industry to navigate the complexity of tax incentives. Tax professionals can help avoid noncompliance by reviewing eligibility criteria and the application process, while also providing insights on best practices for maximizing the benefits of tax incentives.
Your Guide Forward
With decades of specialized experience, our team helps A&E firms effectively navigate these tax considerations to identify opportunities and realize tax savings. Cherry Bekaert’s Tax Credits & Incentives Advisory (TCIA) team is dedicated to staying informed on the latest A&E tax updates. Please reach out to the TCIA team if you want to explore tax incentives for your business.
Related Insights
- Article: Designing for Efficiency: How the 179D Tax Deduction Benefits A&E Firms and the Environment
- Article: Understanding the FAQs Related to Overhead Rate Audits for Growing A&E Firms
- Podcast: Exploring Contractor Business System Reviews for A&E Firms
- Podcast: Form 7205: What A&E Firms Need To Know To Claim the Section 179D Tax Deduction
