Contractors: it’s worth pausing to see if you qualify for a federal research and development tax credit. You may already be doing the work!
The federal government provides a general business credit of between 6%-12% of qualifying research and development expenditures. That’s a cash savings you can use for growth. You may already be doing work that qualifies.
Jump start your thinking about projects that are potentially eligible for this tax credit with these examples shared in Construction Dive:
- Developing prototypes and modeling.
- Development of new, improved or more reliable products, processes or techniques.
- Design improvements for LEED or energy-efficient projects.
- Development of a unique assembly or construction methods and processes.
- Experimentation with new building materials.
- Complex systems integration design.
- Developing or improving construction equipment.
- Any project that requires an extra level of testing or certification upon completion.
Assess Current Projects Using This Four-Part Test
Construction Dive offers this advice from Cole Marr, research and development director at California accounting firm Sensiba San Filippo:
The R&D tax credit is designed to keep top talent and innovation thriving in the United States. The credit is an incentive that rewards companies that continue to innovate and pursue new challenges. There is no requirement that a company’s R&D efforts be revolutionary. Projects and initiatives that are evolutionary, or incremental to a business, can also qualify. In addition to the federal R&D credit, many states offer similar R&D tax credit incentives that typically follow the federal guidelines.
Marr advises contractors to assess projects using this “four-part test.”
- Permitted purpose: Activity intended to improve a product, process, technique, invention or software.
- Elimination of uncertainty: Activity intended to yield information that helps eliminate technical uncertainties related to capabilities or methods—and therefore contributes to improved product or process design.
- Technical in nature: Activities that are “hard science”—engineering!
- Process of Experimentation: Activities must involve the evaluation of alternatives to achieve results.
In assessing projects that might qualify, steer away from exclusions or those funded by another entity. Examples of exclusions are: “routine” engineering work; research on “style or taste”; research in social sciences, arts and humanities—or efficiency and consumer surveys; and, projects outside the U.S.
Wages, Supplies and Contract Research: Add It Up
Ultimately, the wages, supplies and contract research associated with qualifying activities can be quantified for credit. As Marr summarizes:
When activities are determined to meet the above four criteria, the associated expenses for that project can be quantified and used to generate the R&D tax credit. Qualified research expenses consist of three basic expense categories: wages, supplies and contract research. If these expenses can be traced directly back to the activity in question, they can be considered a qualified research expense.
So often, it is in re-thinking the basics that innovation occurs. At Colonial Surety Company, we proudly take a pragmatic approach to helping contractors gain time and money.
Our unique Partnership Account® arms contractors with fast, direct access to the bonds needed to run the business—and real time financial intel vital to grow the business. With a Partnership Account® contractors:
- Gain the ability to control bidding and bonding, online and in real time.
- Use Colonial’s power of attorney and seal to issue their own bid bonds—in minutes.
- Compete with completely confidential bids—there are no third parties.
- Order performance and payment bids easily from a customized digital dashboard.
- Track bids and work on hand in real time with free management reports.
- Speak directly with Colonial’s lead underwriter as new opportunities emerge.
- Leverage data on a private Owner’s Dashboard to view surety lines, adjust work on hand, analyze bids—and grow.
Get Credit for Time and Effort—Literally
Colonial Surety is eager to provide the game-changing benefits of Partnership Accounts® to more contractors. It’s hard and sometimes frustrating for contracting companies to pause “business as usual” and try something new. That’s why Colonial’s streamlined, fully digital new pre-qualification process reduces the hassle and time it takes busy owners to apply for a surety line of credit—and adds useful incentives too.
After entering just a few, bare essentials about the business in Colonial’s proprietary online system, all applicants receive, for free, the Dun & Bradstreet Financial Stress Score, Commercial Credit Score and Paydex. Contractors can use these scores to gain new business intel immediately.
Contractors who pre-qualify for a surety line of credit, go on to upload a few more documents that help Colonial better understand their operation. The entire process exemplifies Colonial’s commitment to customers: simple, direct, and efficient, with value added services built right in.