Posted by on 03.08.23

Did you know that Electrical Contractors may be eligible to receive Research and Development (R&D) tax credits?  Most contractors don’t.  This is evident by the fact that less than one third of businesses that are eligible for these credits actually apply for them.  R&D credits are available to more than just scientists and “new” technologies, i.e. green technologies. In fact, anything that relies on the hard sciences, such as engineering, physics, chemistry, biology or computer science can qualify. Electrical services, often thought of as an old or established technology, are frequently innovative and forward thinking. They often focus on improving existing technologies and creating new ones and thus may be eligible for such revenue-saving benefits come tax time.     

Less than 33% of companies that qualify for the federal R&D tax credit actually utilize it.

An electrical contractor is a business person or firm that performs specialized construction work related to the design, installation and maintenance of electrical systems.  There is plenty of ground there upon which to qualify for R&D tax credits.  Design is practically a given.  Design of electrical systems, commercially or residentially, requires a lot of careful consideration and when a contractor has to think “outside of the box” to design a system for a particular property, they need to use the correct software and often have to complete loads of research to get it right.  These activities alone often qualify them for the R&D credit.  New, easier methods of installing these systems and any simplification of maintenance to them would also apply. Any activity that creates progress in the industry has the potential to qualify for the R&D credits.

The R&D Tax Credit

The Research and Development (R&D) Tax Credit has a long history, essentially dating back to 1981. The movement was started because Congress recognized that the United States had fallen behind other countries economically due to a lack of investment in research into new and better ways to improve productivity and streamline processes. Research drives development and innovation.  Without advances in technology, industries simply stagnate and fall behind in the global race to produce new and better products and services, while reducing costs and saving energy. By providing tax incentives for businesses that engage in these activities we incentivize them to keep innovating and improving their processes.  Hence, these benefits are available to a wide range of businesses and electrical contracting is certainly one of them. 

Find Out If Your Business Qualifies For These Tax Saving Credits

The activities and associated expenditures of a company can qualify for the R&D tax credit if the activities meet the four-part test established by the IRS:

1. Elimination of Uncertainty: You must demonstrate that you’ve attempted to eliminate uncertainty about the development or improvement of a product or process. In other words, something that has been changed solely for aesthetic purposes would not qualify.
2. Process of Experimentation: You must demonstrate – through modeling, simulation, systematic trial and error or other methods --- that you’ve evaluated alternatives for achieving the desired result.
3. Technological in Nature (The Discovering Technological Information Test): The process of experimentation must rely on the hard sciences, such as engineering, physics, chemistry, biology or computer science.
4. Qualified Purpose (The Business Component Test): The purpose of the research must be to create a new or improved product or process, resulting in increased performance, function, reliability or quality.

Which Activities Qualify?

The following are examples of qualifying electrical contracting activities:

• Exploring means, methods and construction techniques
• Development of new materials for electrical insulation
• LEED or energy efficient designs
• Developing and improving construction equipment
• Utilizing BIM (Building Information Modeling)
• Conducting voltage drop calculations
• Copper or Aluminum wire determinations
• Performing services design and testing
• Performing conduit wire overheating calculations
• Value engineering
• Conducting Request for Information Process (RFI’s)
• Utilizing BIM modeling for sub-system coordination

Request a free assessment to determine qualifying R&D tax credit eligibility.

Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with businesses that may qualify for R&D tax benefits. For more information, call us at 800-260-4138 or please leave us a message below.