The infrastructure we rely on requires constant reinvention. The impacts of climate change are no longer distant: shifting landscapes and rising tides test the limits of our bridges, electrical grids, and wastewater systems every day. For America’s civil engineers, experimenting beyond the known boundaries of design and development is imperative for mapping each client’s constellation of concerns and creating custom solutions, each informed by its environment. 

The Challenge: Balancing Innovation with Financial Resources

While civil-engineering firms invest heavily in research and development (R&D), they also face the same challenge as other innovative industries: balancing the cost with the competing necessities of maintaining profitability and funding growth.

Yet many companies overlook untapped resources: R&D tax credits. These tax incentives can increase cash flow and reduce tax liability. They can also maximize time, which is critical to civil engineers tackling high-stakes problems with short timelines, imposed by the forces of nature.

This financial tightrope was a familiar path for a civil-engineering firm protecting the West Coast from the crises provoked by climate change. This California-based firm had an annual revenue of $50 million and 200 employees, including a vanguard of architects, engineers, field personnel, project managers, scientists, and software developers. 

The company secured landmark projects but failed to capture the full financial value of those investments until its partnership with Acena Consulting (Acena). Our client relied on us to navigate the complexities of R&D tax credits, which can be claimed at the federal and state levels.

Acena’s Approach: Strategic R&D Tax Credit Optimization

Acena completed a qualification assessment of R&D processes and projects, performed a quantitative analysis, and developed the documentation necessary to substantiate each claim.

During qualification, Acena scrutinized company activities to identify all project-associated expenses. This examination included a deep dive into all R&D projects, including those supporting:

• Bridge design: 

  • Iterative optimization of new architecture – including its construction process, materials selection, and structural design – for seismic resistance and climatic resilience. 

• Environmental conservation: 

  • Innovation of remediation processes for contaminated groundwater using permutations of chemical reactions and incubations with engineered microbiomes.

• Roadway development: 

  • Development of new paving materials to maximize the roadway’s durability and minimize its ongoing environmental impact.

  • Iterative design of a new roadway construction alignment to maximize vehicular and pedestrian safety, minimize flood control, and prevent geological impact.

• Water treatment:

  • Design of efficient pumps enabling facilities’ functionality while maximizing cost-effectiveness for the customer.

  • Development of new processes for contaminant-specific filtration and water-quality monitoring.

Acena’s diverse team of CPAs, engineers, and tax professionals was uniquely positioned to identify these expenditures and understand their connections to functional advancements, which expedited study completion to our partner’s benefit in both time and money.

The Impact: Reinvesting in Innovation and Growth

Beyond simply qualifying eligible activities, Acena provided a quantitative analysis that resulted in a substantial and defensible credit and developed the necessary documentation to support their claim. This meticulous approach ensured our partner could confidently claim the credits without undue fear of an audit.

The results of our engagement were significant. 

• Qualified research expenditures (QREs) approximated $6.5 million.
• The federal R&D tax credit amounted to $500,000.
• The California R&D tax credit equaled $450,000.

In other words, the income tax liabilities owed to the federal government and the state of California were decreased directly – dollar for dollar – by $500,000 and $450,000, respectively. 

• But what if Acena’s partner had owed less than these amounts? The federal R&D tax credit carries forward for a maximum of 20 years. The California R&D tax credit not only carries forward until it is used, but also may be partially refunded if earned during the tax years 2024 to 2026.

• Questions? Schedule a free consultation today to receive immediate assistance from Randy Eickhoff, CPA, Founder & Head Coach at Acena.

Our partner secured substantial R&D tax credits, which translated directly into reduced tax liability and improved cash flow. These funds were strategically reinvested back into the business to further hone design practices and hire internal expertise that was previously contracted.

Key Takeaways

This case study underlines the importance of strategic tax planning.

• Claiming the R&D tax credit can sharpen your competitive edge. These incentives can be reinvested internally to augment internal capabilities.
• Substantiation is essential. Meticulous documentation of R&D activities is crucial to substantiate credit claims and withstand potential audits.
• Expert guidance is invaluable. Partnering with experienced R&D tax-credit specialists like Acena can maximize credit amounts, minimize risk, and streamline the entire process. 

Stay Informed

Want to learn more about qualifying and documenting activities for R&D tax credits?

• Sign up for our next free monthly webinar on March 18: “Cracking the (Tax) Code for R&D.”
  • This workshop provides one CPE credit for professionals who are keeping up with continuing education.

Visit our Acena Events page to stay abreast of all upcoming events.

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Edited by Rae Fox-Smoltz, BSBA, BSENRE, Project Manager at Acena Consulting. Photo courtesy of ohefin on Flickr.