R&D tax credits, entity structures for multi-phase projects, and partner compensation strategies that hold up under IRS scrutiny.
Engineering firms sit on more tax opportunity than almost any professional service, and most of it goes unclaimed. Design work that resolves technical uncertainty qualifies for the research credit under section 41, yet the firms that could claim it rarely document the projects that way. Long contracts raise accounting method questions that decide which year the profit lands in. And partner compensation is usually set by the partnership agreement, not by a tax model.
The plan starts with how the firm recognizes revenue and pays its partners, then layers the credit study, the section 174 treatment of research costs, the retirement plan design for a partner group of mixed ages, and the entity structure that survives a partner buy-out or a sale to a larger firm.
We work with the firm’s controller and CPA, model the alternatives against the actual project ledger, and write the blueprint with the documentation each position needs.
What we typically see: Research credits never claimed, or claimed without a study. Section 174 capitalization handled as an afterthought. Partner draws set once and never modeled. A 401(k) doing the work a cash balance plan should.
Each one is modeled against your numbers and written into the blueprint with the documentation it needs.
We had been doing qualifying design work for fifteen years and had never filed the credit once. The study changed the last three returns.
Frequently. Work that resolves technical uncertainty through a process of experimentation qualifies, including much design and prototyping. Routine or duplicative work does not. A study sorts the projects.
Research costs must be capitalized and amortized rather than deducted immediately, which changes cash flow and interacts with the credit. Planning the treatment across years matters more than it used to.
Open years can generally be amended, and the study covers them. Whether it is worth doing depends on the size of the credit and the documentation available.
A cash balance plan combined with the 401(k) can be designed with different contribution levels by age and role. The actuary sets the design; we model whether it fits the firm's cash flow.
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