Navigating the labyrinthine landscape of the U.S. tax code is daunting for many companies, especially design firms, which often remain unaware of valuable tax incentives that could significantly benefit their business. To shed light on this subject, Dawson Fercho, the co-founder and Vice President of Business Development for Corporate Tax Advisors, sat down with Randy Wilburn, the host of the “Encourage Build Grow” podcast. The goal? To elucidate the often-misunderstood topic of research and development (R&D) tax credits, a boon that has been around since 1981 but still goes largely untapped by companies in the design sector.
Qualifying for the R&D Tax Credit
Contrary to popular misconceptions, the Federal Research and Development Tax Credit is not confined to laboratory activities or tech firms. The criteria for qualifying have evolved since its introduction in 1981, allowing for a broader range of industries and companies to take advantage of this incentive. One key takeaway Dawson emphasized is that innovation is not exclusive to technology companies; it pertains to any form of creating change or finding new methods.
Many businesses wrongfully assume that their CPA is well-versed in every single tax incentive available. The reality is, the tax code comprises over 9,000 regulations, making it impossible for accountants to be experts in each one. Corporate Tax Advisors specializes in three specific code sections related to R&D tax credits, offering a niche expertise that generalist CPAs may lack.
R&D Tax Credit for Design Firms
Design firms are uniquely positioned to benefit from R&D tax credits, as their work naturally aligns with the four-part test outlined in the Internal Revenue Code to determine eligibility. Given that design firms are hotbeds of innovation—constantly searching for ways to improve function, performance, reliability, or quality—they easily meet the criteria. However, the lack of awareness and education often precludes these firms from claiming what they’re entitled to.
CPA firms and industry associations are increasingly acknowledging this gap and inviting specialists like Corporate Tax Advisors to educate their clients on R&D tax credits.
Qualifying Projects and Benefits
Dawson emphasized that qualifying projects often revolve around overcoming technical risk and uncertainty. Designers and engineers usually work from the principles of science and engineering, ticking off yet another box in the eligibility checklist. Corporate Tax Advisors even provides examples of qualifying projects, thereby offering not just advisory but also educational services to the design industry.
Maximizing the R&D Tax Credit
For design firms interested in tapping into this underutilized resource, the first step is to educate themselves. Corporate Tax Advisors is more than willing to assist, and connecting with them can be as easy as a visit to their website or a simple email or phone call. Dawson also recommended the book ‘Thinking, Fast and Slow’ by Daniel Kahneman as a valuable resource for understanding decision-making processes.
It’s worth mentioning that the R&D tax credit is now permanently codified and should be revisited strategically each year. Interestingly, it’s an incentive that pays back—the Treasury receives about $1.30 in increased tax revenue for every dollar of incentive offered.
Conclusion
The “Encourage Build Grow” podcast aims to develop better leaders and communicators within the design profession. The discussion with Dawson Ferco could not be more aligned with this objective. With 80% of listeners likely knowing someone who does similar work to them, sharing the information discussed in this episode could make a significant impact on the industry as a whole.
