As outlined in our article "Civil Engineering Firms Losing out on Millions" technical based companies are excellent and often overlooked industries for the R&D Tax Credit.
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.