Posted by Jeffrey Feingold on 08.28.17
Every day, companies involved with heating, ventilation, and air conditioning (HVAC) conduct activities that are considered qualifying research for the research and development (R&D) tax credit. Yet most fabrication companies don’t realize they can be saving tens of thousands of dollars or more by utilizing the R&D tax credit.
As the trend for homes and buildings moves towards energy efficiency, the HVAC industry is leading the way. Improvements to air flow, energy efficiency, and indoor air quality call for improvements in the design and installation of HVAC systems and improved methods for fabrication of HVAC components. R&D tax credits target companies that are developing new or improved products or processes. Originally enacted into law in 1981 as a way to keep companies in the United States competitive in the global market, the R&D tax credit is one of the largest tax credits available to taxpaying employers and shareholders. Only a small percentage of small to medium sized companies take full advantage of the R&D tax credits due to lack of information or misinterpretation of what qualifies. Simply stated, companies engaged in the design, installation, and fabrication of HVAC systems and components may be eligible to receive a significant tax credit, and in some cases, refunds for these qualified R&D tax credits. The great news is that this is a permanent tax benefit and a dollar-for-dollar tax savings.
HVAC system design, as a sub-discipline of mechanical engineering, requires application of thermodynamics, fluid mechanics, and heat transfer. The fabrication and installation of HVAC systems is often a highly customized endeavor that calls upon analytical skills and improved methods to accommodate specific system envelopes and reduced time and cost for fabrication.
To assess qualification for any given project, the experts at Tax Point Advisors may ask about a four-part test that embodies the definition of qualified research for the R&D tax credit: * Are you trying to make improvements to your products or processes? * Does the project or activity involve aspects of the hard sciences, engineering or computer sciences? * Was there any uncertainty in regards to your development during this project? * Did you have to analyze your results or develop prototypes?
The following are examples of qualifying activities for the HVAC industry:
The experts at Tax Point Advisors will identify costs associated with the research through expenditures that fall into three categories of cost.
Wages - The compensation associated with time spent by employees on qualifying research and development activities for the company.
Contract Research - Third parties that may perform any development or testing on a company’s behalf (for example: individual contractors, or subcontractors, etc.).
Supplies – Supply costs incurred in conducting the research (for example: prototyping expenses, testing materials, scrap metal, etc.).
Many of the activities conducted by HVAC companies qualify for the R&D tax credit, and it’s an industry that can benefit greatly from these tax credits and incentives. This is especially the case given LEED and other green initiatives. Tax Point Advisors currently partners with some of the most forward-thinking companies in the industry already, and we’re eagerly looking to help additional companies take full advantage of the available credits in the most effective way.
Tax Point Advisors provides R&D tax credit study services and other specialty tax services to CPA firms and their clients throughout the U.S. To learn more about R&D tax credits and the 179D tax deduction from the experts at Tax Point Advisors, please call us at (800) 260-4138 or please leave us a message below.