Tax Credit Incentives for Contractors
Contractors have several tax credit incentives available to them that are often overlooked. Some construction companies are unaware of these programs, while others fail to take full advantage due to misconceptions about the qualified activities and expenses. Taking the time to understand tax credits and incentives, as well as how to correctly identify and properly document the support for the credit, is essential to realize significant tax savings. These incentives have the potential to provide significant cash flow to the business and its stakeholders.
Research and Development Tax Credits
Research and Development (R&D) Tax Credits may provide an immediate source of cash for your construction company. Over the years, we have learned that many entities believe that the R&D credit will not apply to their business. McKonly & Asbury has assisted many clients over the past several years in identifying R&D tax credit opportunities. This has resulted in hundreds of thousands of dollars in tax credits. In many instances, the R&D tax credits resulted in credits on previously filed returns as well as on a go-forward basis. We recently identified an opportunity for a local general contractor with annual revenue of approximately $20 million. This opportunity resulted in over $200k of credits from previously filed returns, and they will continue to receive R&D tax credits annually.
The R&D Tax Credit may be claimed by taxpaying businesses that develop, design, or improve products, processes, formulas, and software. We have seen many general contractors eligible for this credit, especially as it relates to design work. However, the credit is not limited to general contractors. Any contractors involved in design, including HVAC, construction equipment, facilities, electrical systems, green initiatives, and many other service lines may be eligible. As a construction contractor, sub-contractor, or specialty contractor you should consider an R&D tax credit study.
Solar Investment Tax Credit
The Solar Investment Tax Credit (ITC) is a 26% tax credit for residential and commercial investments in solar property. The ITC was recently extended and will be 26% for projects that begin construction in 2021 and 2022, and 22% for 2023. After 2023, the residential credit will be 0% and the commercial credit will be 10%. McKonly & Asbury has worked with commercial entities to calculate the tax credits, develop cash-flow models, and forecast projections over the life of the solar projects. These projects have provided our clients with insight into their investment in solar, as well as the cash flow benefits to the business and its owners.
The Solar Power industry has experienced significant growth from 2015 to 2020 with average industry growth of 23.8% according to IBISWorld. The ITC is part of the driver of this growth. We are familiar with these opportunities for your construction business whether you are looking to invest in your own solar equipment or looking to expand your lines of service.
McKonly & Asbury’s construction services extend well beyond audit and tax preparation. We are active in the industry which allows us to understand the needs of our clients and the opportunities for them to improve financial results and grow the business. We are here to walk you through identifying and utilizing these tax credit incentives as they apply to your specific situation. For more information on these services and more, be sure to visit our construction page and don’t hesitate to reach out to Dan Sturm, Partner and Leader of our Construction Industry practice at dsturm@macpas.com.
About the Author
Dan is a Partner and the Director of our Architecture, Engineering, and Construction (AEC) Practice, serving clients across the Mid-Atlantic. His industry focus includes construction, employee benefit plans, federal acquisition r… Read more
