R&D Tax Credit for
Architecture and Engineering Firms
Most architecture and engineering firms qualify for the R&D Tax Credit. Most of them don't know it.
The credit rewards exactly what A/E firms do every day — applying technical expertise to solve design problems under conditions of uncertainty.
This hub covers what qualifies, what the documentation process actually involves, and how to give your CPA everything they need without turning tax time into a research project.
The Credit Most A/E Firms Are Leaving on the Table
The Research and Development Tax Credit was not designed with architecture and engineering firms in mind. It was designed for pharmaceutical companies, aerospace manufacturers, and technology developers. The language of the IRS code reflects that — "qualified research," "process of experimentation," "technological in nature" — none of which sounds like what an architect or engineer does on a typical project day.
But the IRS four-part test that determines eligibility applies directly to A/E work. Architecture and engineering firms are solving technical problems under conditions of genuine uncertainty on almost every project they take on. A structural system that has to meet seismic requirements while fitting within an architectural envelope that the client has already approved. An MEP design that has to integrate with an existing building without disrupting occupancy. A site design that has to manage stormwater within regulatory constraints while preserving programmatic requirements. Each of these involves a process of technical experimentation — evaluating alternatives, testing approaches, eliminating what doesn't work — that satisfies the IRS test for qualified research.
The reason most A/E firms don't claim the credit is not that their work doesn't qualify. Nobody told them it did — and the documentation process sounds more complicated than it is.
The documentation process is not complicated. It is specific. What your CPA needs is a set of defined deliverables — project narratives, time records, technical evidence, and a labor report that shows who worked on qualifying activities, when, and for how long. Most of that documentation already exists as part of running a normal A/E project. The piece that doesn't exist automatically — the labor report organized the way a CPA needs it — is the piece BaseBuilders generates in minutes.
Your CPA will use the Phase, Activity, and Comments columns from your labor report export to make qualification determinations. The Comments field is where contemporaneous documentation of the specific technical work lives.
Check with your CPA; BaseBuilders is not a tax advisor, does not play one on TV, and tax laws are constantly changing.
R&D Tax Credit Playbooks for A/E Firms
These playbooks cover the complete R&D Tax Credit process for architecture and engineering firms — from understanding what qualifies through generating the labor report your CPA needs and preparing the complete documentation package for filing.
Choose the Right Tools
Compare A/E Software Side-by-Side
See how tools stack up on billing, scope control, and profitability.
Best Software for A/E Firms
A breakdown of top tools—and where they fall short
Understand the Full R&D Tax Credit Process for A/E Firms
What the IRS Actually Requires — and Why A/E Work Qualifies
The R&D Tax Credit is governed by Section 41 of the Internal Revenue Code. To claim it, the work must pass a four-part test: it must be technological in nature, intended to discover information that eliminates uncertainty, involve a process of experimentation, and relate to a new or improved business component.
Every one of those criteria maps directly to how A/E firms work.
Technological in nature means the work must rely on physical, biological, engineering, or computer science principles. Architecture and engineering work is definitionally technical — structural analysis, MEP system design, site engineering, building envelope performance. The technological nature of A/E work is not a stretch. It is the premise of the profession.
Intended to eliminate uncertainty means the firm didn't know at the outset whether the approach would work or whether an alternative would be superior. This describes early-phase A/E design exactly. The structural system that satisfies seismic requirements while meeting the architectural program has not been determined at the start of schematic design. The HVAC approach that meets energy performance targets within the mechanical budget is genuinely uncertain when the project begins.
A process of experimentation means the firm evaluated multiple approaches — modeling, testing, comparing alternatives — to determine which solution worked. A/E firms do this continuously: multiple structural configurations evaluated against the program, alternative MEP approaches modeled for energy performance and cost, site drainage approaches tested against regulatory requirements.
Related to a new or improved business component is the broadest criterion and the one most firmly satisfied by A/E work. Every building, every infrastructure project, every site plan is a new business component — a unique technical solution developed for a specific client and site condition.
The work qualifies. The question is whether the firm has the records to prove it.
Which Phases Qualify — and Which Don't
Not all A/E work qualifies for the R&D Tax Credit. The IRS distinction is between work that involves genuine technical uncertainty and experimentation — and work that applies established knowledge to execute a design that has already been determined. This table covers your typical phases and their treatments.
| Phase | Likely Treatment | Why |
|---|---|---|
| Proposal / Pre-design | May Qualify In Part | May qualify if the firm is testing technical feasibility, system approaches, site constraints, energy strategies, or constructability options. Pure estimating, marketing, interviews, or fee proposals do not qualify. |
| Programming | Usually limited | Owner interviews, space planning, and requirements gathering are usually not enough. Technical feasibility studies may qualify. |
| Concept / Schematic Design | Often Qualifies | This is where alternatives are usually evaluated: massing, envelope, structure, energy, materials, site constraints, code paths, daylighting, sustainability, etc. |
| Design Development | Often Qualifies | Technical uncertainty is often being resolved here through iterations, modeling, coordination, system selection, and performance tradeoffs. |
| Construction Documents | May qualify in part | Technical detailing may qualify if unresolved technical uncertainty remains. Routine drafting, documentation, sheet production, and standard detailing usually do not. |
| Permitting / Agency Review | Usually Not | Responding to normal plan-check comments is generally compliance work. It may qualify only if the response requires new technical experimentation. |
| Bidding / Negotiations | Usually Not | Pricing, bid support, addenda, and contractor questions are usually commercial or administrative. Technical redesign during this phase may qualify. |
| Construction Administration | May Qualify In Part | Routine RFIs, submittals, site visits, pay apps, meeting minutes, and punch lists usually do not qualify. Technical redesign, field-condition problem solving, or alternate system evaluation may qualify. |
| Closeout | Usually Not | Record drawings, warranties, manuals, and closeout administration are not R&D. |
Staff Activities Govern R&D Qualification More Than Phases
The actual activities of your staff is more important to the R&D tax credit qualification than the phase they are working on. This table outlines typical activities and how your CPA will likely treat them.
| Activity | Likely Treatment | Why |
|---|---|---|
| Project Administration | Usually Nonqualified | General project setup, scheduling, billing notes, staffing, budget tracking, and administrative coordination usually do not involve technical uncertainty or experimentation. |
| Client / Owner Meetings | Usually Nonqualified | Most owner meetings are about requirements, preferences, budgets, schedules, approvals, or communication. They may support the project, but they usually are not technical research. |
| Project Management / Coordination | Mixed / Requires Review | General coordination is usually nonqualified. Time may be reviewed if the person was directly supervising or coordinating technical experimentation, alternatives, modeling, or problem-solving. |
| Existing Conditions / Field Verification | Mixed / Requires Review | Routine measuring, documenting, and confirming existing conditions usually does not qualify. Technical investigation of unknown constraints may be a candidate. |
| Technical Investigation | R&D Candidate | This may involve identifying technical uncertainty, investigating constraints, testing feasibility, or determining whether a proposed design approach can work. |
| Design Alternatives / Feasibility | R&D Candidate | Evaluating alternate approaches is often central to the process of experimentation, especially when the firm is trying to resolve technical uncertainty. |
| Technical Analysis / Calculations | R&D Candidate | Calculations and technical analysis may qualify when used to test or resolve design uncertainty, performance requirements, code constraints, constructability, or system feasibility. |
| Modeling / Simulation / Performance Studies | R&D Candidate | Energy models, daylighting studies, envelope studies, structural modeling, airflow studies, acoustical studies, or similar work may show evaluation of alternatives and technical performance. |
| Code / Regulatory Technical Analysis | Mixed / Requires Review | Routine code lookup or compliance documentation usually does not qualify. It may be a candidate when technical uncertainty exists around how to satisfy competing or unusual requirements. |
| Material / System Evaluation | R&D Candidate | Comparing materials, assemblies, products, or systems may qualify when the firm is evaluating performance, constructability, cost, durability, energy, fire rating, acoustics, or other technical criteria. |
| Interdisciplinary Coordination | Mixed / Requires Review | Ordinary coordination between architecture, structural, MEP, civil, and consultants is usually not enough. It may be a candidate when coordination requires resolving technical conflicts or testing alternatives. |
| Design Development / Technical Resolution | R&D Candidate | This is often where technical uncertainty is narrowed or resolved through analysis, iteration, modeling, detailing, and evaluation of alternatives. |
| Production Drafting / Documentation | Usually Nonqualified | Routine drawing production, BIM updates, sheet setup, annotation, cleanup, and documentation usually record decisions already made rather than resolve technical uncertainty. |
| Technical Detailing | Mixed / Requires Review | Routine drawing production, BIM updates, sheet setup, annotation, cleanup, and documentation usually record decisions already made rather than resolve technical uncertainty. |
| Quality Control / Internal Review | Mixed / Requires Review | Routine redlines and checking are usually nonqualified. Review may be a candidate if it directly supervises or evaluates technical experimentation or unresolved design alternatives. |
| Permitting / Agency Response | Usually Nonqualified | Permit processing and ordinary responses to plan-check comments are usually compliance work. It may be reviewed if the response requires new technical problem-solving. |
| Bidding / Procurement Support | Usually Nonqualified | Bid support, addenda, pricing assistance, substitutions, and procurement questions are usually commercial or administrative unless they trigger real technical redesign. |
| Construction Administration | Usually Nonqualified | Routine CA, site observations, meeting minutes, pay applications, punch lists, and general construction support usually occur after design uncertainty has been resolved. |
| RFI / Submittal Review | Mixed / Requires Review | Routine RFIs and submittals usually do not qualify. They may be candidates if they require analysis of alternatives, technical redesign, or resolution of unexpected field conditions. |
| Field Issue / Technical Redesign | R&D Candidate | Unexpected field conditions or failed assumptions may require new analysis, redesign, testing of alternatives, or technical problem-solving. |
| Project Closeout | Usually Nonqualified | Record drawings, warranties, manuals, final punch items, and administrative closeout generally do not involve qualified technical experimentation. |
The Labor Report — and Why It's Simpler Than It Sounds
The piece of the R&D Tax Credit documentation that A/E firms most commonly don't have ready at tax time is the labor report — a structured record of which employees worked on qualifying activities, on which projects, in which phases, for how many hours, representing how much direct labor cost.
This is not a complex document. It is a seven-column export:
Staff — the employee who performed the work
Date — when the work was performed
Project — which project the work was charged to
Phase — which project phase (SD, DD, CD)
Activity — what type of work was performed within the phase
Hours — the time logged
Direct Labor — the dollar value of those hours at the employee's labor rate
Every column in that export comes from data that already exists in BaseBuilders as a normal byproduct of running the project. Time is tracked against projects, phases, and activities as work happens. Direct labor rates are configured against each employee. By including the phase and activity in the export, your CPA can quickly add up the labor costs that do and do not qualify. This saves you expensive accountant hours.
Generating the report is a single export. Simply query for the desired date range (e.g., last year), select the saved R&D column set, and click the export button.
The labor report is item four of approximately ten things your CPA needs for a complete R&D Tax Credit claim. The other items — technical narratives, evidence of experimentation, project contracts, prior-year qualified research expense history — come from the firm's project files and the CPA's analysis. BaseBuilders owns item four cleanly. The rest of the package is assembled from materials that already exist in the course of running a normal A/E practice.
With BaseBuilders' custom fields for projects, you can create places to capture and store the project information needed to satisfy the IRS requirements.
→ Read: The R&D Tax Credit Labor Report: What Your CPA Actually Needs from Your A/E Firm
What Good R&D Tax Credit Preparation Looks Like
A firm that handles the R&D Tax Credit well can answer these questions without a significant documentation effort at tax time:
- Which projects active in the prior tax year involved qualifying phases — SD, DD, or CD work?
- Which employees logged time to those projects and phases?
- What was the direct labor cost associated with qualifying hours, by employee and by project?
- What was the split between qualifying phases/activities and non-qualifying phases/activities for each project?
- Has the labor report been generated, reviewed, and handed to the CPA in a format they can use directly?
A firm with phase-level time tracking and a configured labor report template can answer every one of those questions in a single report run. A firm managing time at the project level — without phase separation, without activity tagging, without a direct labor rate per employee — has to reconstruct that information manually at tax time, or hand their CPA raw time records and pay for the reconstruction as a billable accounting service.
The firms that claim the R&D Tax Credit consistently — and claim it accurately — are not doing more work than the ones that don't. They have systems that produce the documentation as a natural byproduct of how projects are already managed. The credit is the same. The effort is the difference.
Related Resources
The R&D Tax Credit connects to several systems already in place across the firm — time tracking, financial metrics, and the accounting structure that determines how direct labor is calculated and reported.
A/E Accounting for Architecture and Engineering Firms
How direct labor is defined, separated from indirect labor, and reported in a correctly structured chart of accounts — the accounting foundation that makes the R&D labor report's direct labor column accurate.
Time Tracking for Architecture and Engineering Firms
How phase-level time tracking works in practice — and why tracking time against phases rather than just projects is the prerequisite for generating a qualifying R&D labor report.
Financial Metrics for A/E Firms
How direct labor, overhead factor, and net multiplier connect — and how the same data that supports R&D credit documentation also drives the firm's core financial performance metrics.
Proposals & Fees for A/E Firms
How SD, DD, and CD phases are scoped and priced — the fee structure context that determines which portion of each project's total labor qualifies for the R&D credit calculation.
Get Fully Onboarded in 7 Business Days
Our team is ready to guide you from where you are to where you want to be. Give up managerial minutia for the freedom to focus on the work you do best.
BaseBuilders’ easy-to-use software is specifically designed to help small to mid-sized firms track time, manage projects, stay on top of expenses, and more. We’ll handle the invoicing for you so you can focus on growing your firm and designing wonderful spaces.