General Contractors/Construction Contractors Can Qualify for R&D Tax Credit

Posted by Jeffrey Feingold on 01.13.14

General contractors and construction companies are often struggling in this economy to keep their heads above water. The means to help them may be right in front of their eyes, and they are missing it. The federal government, as well as individual states, allow tax credit for much of what the contractors are doing. These tax credits are substantial. They are not deductions, but bottom-line, dollar for dollar reductions on taxes owed.

R&D Tax Credit applies to contractors.

The federal government implemented R&D Tax Credits originally to create jobs and to keep the US technologically savvy. Since that time, lots of extras have been added to better define what R&D includes. Don't let the name fool you. The IRS calls it the R&D tax credit; however, the definition includes far more than research, new patents, and laboratory work. It includes development of new processes, techniques, formulas, and computer software, and also design of new projects (designing electrical systems, mechanical systems, HVAC, and so on typically qualify).

Why aren't contractors using them?

This money saving opportunity is vastly overlooked by contractors. They either don't know about it or misunderstand it. It applies to many construction jobs. Construction companies and contractors can often save hundreds of dollars by using this R&D tax credit.

What activities qualify?

The process can be new to you, but not new to the industry. It doesn't matter if everyone else is doing it. If you haven't been and begin to use a process that improves the way you do things, it counts. These are often projects done on the shop floor or the building site. Here are some ideas that may qualify:

  • LEED projects
  • Value engineering
  • Improving the overall process in increase efficiencies
  • Design-build
  • Pre-construction planning
  • Development of means and methods for hard-bid jobs

How much do we save with R&D Tax Credit?

Since this incentive is an enticing dollar-for-dollar reduction in tax liability, even a small portion of activities that qualify can result in significant tax benefits. By increasing the work mix to activities that qualify, companies can reap bigger benefits in future years. You can go back 3 years to claim the credits for which you are eligible. Thousands of dollars of tax savings are being seen by contractors using the credit. Federal R&D Tax Credit can be carried forward for up to 20 years. State rules are different. Certain state credits have no expiration and can be carried forward indefinitely. Some states have "refundable" R&D tax credit which can result in cash refunds even when a company has no tax liability. The bottom line difference is huge and can really help struggling businesses.

How do we get more information?

Ask your CPA for more information or contact a specialty tax service provider like Tax Point Advisors. Our no-risk, no-obligation evaluation is free to see if you qualify and to give you an estimate of the savings you could expect. We give you the details of what it would take to proceed, and what your flat fee would be.


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