Architects & Civil Engineering Firm
The top misunderstandings about these firms:
They don’t qualify for the credit because they are not “Manufacturing”
Section 41 was not designed exclusively for Manufacturers, although they are our most common client for R&D Tax Credits. Qualification is based on activities performed by the company. A full list of these activities can be found in the GMG App by clicking on the R&D Tax Credit.
If fact, Architectural, Engineering, and Construction (AEC) often qualify at much higher rates than traditional manufacturers.
The Client is too small to qualify for the R&D Tax Credit
As outlined in numerous training sessions, technical based firms may qualify even if well below the typical million dollar payroll threshold. The reason for this can be found int he main that the credit is calculated. The credit is not based on total annual payroll, it’s based on total annual payroll multiplied by what percentage of that payroll is a qualified activity for the credit based on the IRS definition of Qualified Activities (again outlined within the app).
This means that a $400K payroll for a technically based company could yield a higher tax credit (and therefore fee and commission) than a $2.4M annual payroll of a general manufacturer.
The PATH Act of 2015
Startup Companies & The R&D Tax Credit
Startup Companies Now Qualify
The definition of a Startup under the PATH Act is simply, any company formed after 2010 with gross receipts less than $5M in 2016. Qualifying businesses may capture up to $250,000 of incentives and tax credits annually and be able to claim credits against payroll taxes. Companies that don’t meet this criteria still qualify for Federal Tax Credits under the PATH Act with the expanded R&D Tax Credit.
Startup and Tech companies due to their nature should take advantage of Specialized Tax Incentives that are available to offset tax liability. GMG’s expertise lie in programs such as the R&D Tax Credit, Cost Segregation, Hiring Incentives and Property Tax Mitigation. Programs that prior to the PATH Act were out of reach for small to mid sized companies are now attainable for Startups.
Prior to The PATH Act companies without income tax liability or companies who fell under Alternative Minimum Tax (AMT) either did not qualify for or had to carry forward R&D tax credits. Now, small businesses qualifying under The PATH Act can capture the R&D tax credit within the immediate tax year against payroll taxes, AMT, or Federal Income Taxes.
A Small Business qualifying under The PATH Act with a payroll of $250,000 would normally have to pay $15,500 in FICA. The available (estimated) R&D Tax Credit of $16,000 would offset their tax liability 100%..