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Architects face many challenges when working on projects, from budgeting to meeting deadlines. One of the most frustrating obstacles is dealing with unexpected costs. You've created a comprehensive plan for your project. Still, as work begins, you discover that several areas will require additional research and development to address the unique challenges at hand fully. This can lead to unexpected costs that significantly impact your bottom line. Luckily, R&D tax credits can help alleviate some of this financial stress. This blog will help you understand how to claim R&D tax credits for architects (including startups) so you can recover some of the costs associated with the qualifying R&D activities you conduct while working to overcome the challenges of your architectural project.
Haven’s accounting services for small businesses can help you achieve your goals, from learning about how to claim R&D tax credits for architects (including startups) to maximizing your credits. With our straightforward approach, you can stop stressing over your finances and get back to what you do best: designing.
Table of Contents
R&D Tax Credits for Architects: Who Qualifies? The Four-Part Test
Special Considerations for Small and Startup Architecture Firms
Book a Call to Learn More About our Accounting Services (Trusted by 400+ Startups)
R&D Tax Credits for Architects: Who Qualifies? The Four-Part Test
When people hear the term “R&D tax credit,” they often envision lab coats and cutting-edge technology. But in reality, many architectural projects qualify, and if you're in the business of designing buildings, you're likely leaving money on the table. The Research and Development (R&D) Tax Credit is a federal (and often state-level) incentive designed to reward companies that invest in research and development. For architecture firms, this usually involves developing new design solutions, addressing complex building requirements, or enhancing energy efficiency. If your firm is solving problems through experimentation, you're likely eligible.
Who Qualifies for R&D Tax Credits?
For architecture firms, the potential benefit lies in activities like:
Iterative design and development of building systems
Creating energy-efficient design strategies
Developing new structural, mechanical, or environmental components
Experimenting with new materials or construction methods
The Four-Part Test for Architects
However, while your work may qualify, the IRS still challenges eligibility, especially for service-based firms such as architecture and engineering. So, understanding how to document and substantiate your claim is essential.
Permitted Purpose
The project must aim to create or improve a business component, such as a building design, system, or process. Most architectural designs qualify if they're intended to solve functional, performance, or reliability issues.
Technological in Nature
Your work must rely on principles of engineering or the physical sciences. In architecture, this includes areas such as structural analysis, energy modeling, and mechanical system integration.
Elimination of Uncertainty
There must be technical uncertainty at the beginning of the project. This could lead to uncertainty in achieving design goals, meeting client specifications, or complying with codes.
Process of Experimentation
You must use a process of evaluation, iteration, modeling, or testing to resolve those uncertainties. This doesn’t require formal lab testing it can involve CAD simulations, alternative design iterations, or physical prototypes. If your architectural firm uses a systematic, iterative process to solve building challenges, you’re likely engaged in qualifying R&D.
Key Tax Law Changes Affecting Architects
Under the Tax Cuts and Jobs Act (TCJA) passed in 2017, a significant change went into effect starting January 1, 2022: Previously, R&D-related costs could be deducted in the same year they were incurred. These expenses must be amortized over five years (domestic) or 15 years (international), regardless of whether the R&D tax credit is claimed.
This change impacts architecture firms that previously benefited from large upfront deductions. The tax benefit is spread out, which may reduce short-term cash flow. You can’t deduct these expenses and also count them fully toward your tax credit, which is a significant consideration when calculating total benefits.
Navigating the Narrowing Scope of R&D Tax Credit Eligibility and IRS Scrutiny
Not all Section 174 expenses (required to be amortized) qualify under Section 41 for the credit, creating a narrower definition of eligible R&D. The IRS has also become more aggressive in auditing service firms like architecture and engineering, often questioning whether their work constitutes actual “experimentation” or results in a “tangible product.” Proper documentation is now more critical than ever.
Plan Ahead: Consult a CPA or Tax Expert
While architecture firms can and should claim R&D tax credits, navigating the post-TCJA rules is a complex process. As the IRS continues to scrutinize claims and the laws surrounding deductibility and credits have evolved, it is strongly advised to work with a qualified CPA or R&D tax specialist. Congress is currently considering new legislation that could delay or reverse the amortization rules; however, no specifics have been announced yet. Firms should plan under the current law and adjust later if changes become retroactive.
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Examples of Qualifying R&D Activities for Architects
The IRS defines qualified research as a process of experimentation that helps to create or improve a:
Product
Process
Technique
Formula
Software
The R&D tax credit applies to all industries, including architecture. Here are some examples of qualifying activities that architectural firms can engage in to help reduce their tax liability.
Creating Designs
Architects often seek to create designs that are not only aesthetically pleasing but also functional and efficient. When designing new buildings or rehabilitating existing structures, there is usually a level of uncertainty that can only be overcome through experimentation. If you can demonstrate that your efforts went beyond the scope of existing designs and aimed to improve overall performance, you may qualify for R&D tax credits.
Developing Design Alternatives
Before settling on a final design, architects typically create several design alternatives that may vary significantly from one another. For example, these designs may differ in terms of building orientation, site constraints, programming requirements, layout, and mechanical, electrical, and plumbing (MEP) requirements. If you show that these design alternatives were developed to discover or improve upon specific performance attributes, you may qualify for R&D tax credits.
Creation of Feasibility Studies
Feasibility studies, as well as master plans, often assess the potential performance of a design before construction. They may also help to identify any areas of concern that could impact the structure’s safety, usability, or sustainability. If you can show that your feasibility studies or master plans were created to uncover unknowns and mitigate risk associated with building designs, you may qualify for R&D tax credits.
Utilizing CAD and BIM
Architects use computer-aided design (CAD) and building information modeling (BIM) technologies to create and analyze designs for buildings. These tools enable architects to visualize designs and identify potential issues before construction commences. While there is nothing new about utilizing CAD and BIM technologies, qualifying for R&D tax credits is possible when these tools are employed to develop innovative designs that enhance a building’s performance, sustainability, or energy efficiency. If you can demonstrate that your utilization of CAD and BIM technologies was part of an overall process of experimentation, you may qualify for R&D tax credits.
Collaborating with Other Consultants
Architects rarely work alone. Collaboration with other design professionals and engineers is critical to developing safe, functional, and efficient building designs. When working with other consultants, architects may evaluate various construction methods and techniques to enhance building:
Performance
Sustainability
Efficiency
Suppose you can illustrate that your collaboration efforts with other consultants were part of an overall process of experimentation to discover unknowns and enhance building designs. In that case, you may qualify for R&D tax credits.
Engaging in Value Engineering Studies
Value engineering (VE) studies are conducted to improve the value of a building design by either reducing costs or enhancing functionality. These studies often reveal opportunities to enhance the performance of a building’s systems, resulting in substantial savings for owners and occupants. If you can demonstrate that your VE studies were conducted to discover innovative ways to enhance a building’s performance, you may qualify for R&D tax credits.
Exclusions from the R&D Tax Credit
It is equally important to note the activities that are not covered or are explicitly excluded from the R&D tax credit. These exclusions include:
Activities that involve adaptation and duplication, such as creating multiple identical elementary schools for a school district.
New or added components that serve a purely aesthetic purpose.
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Let your business take flight while Haven manages your financial runway. Built by founders for founders, we handle everything from daily bookkeeping to complex tax filings and R&D credits that put cash back in your pocket, as well as fractional CFO services. Join 400+ startups who've saved millions in tax credits, countless hours of administrative work, and never missed a filing deadline, all while accessing 24/7 Slack support from CPAs who understand the unique challenges of growing businesses. Book a call today to learn how our dedicated team can help you focus on building rather than bookkeeping.
R&D Documentation Requirements for Architects
Each R&D claim should be tied to specific projects that meet the IRS’s four-part test. This means maintaining detailed project files that describe:
Project objectives: What was the intended purpose or improvement?
Technical challenges: What uncertainties or design limitations did you face?
Methods of resolution: How did you approach those challenges (modeling, simulations, trials)?
Final outcomes: What were the results, and what did you learn?
This narrative forms the foundation of your eligibility. It should clearly show that the design process wasn’t just artistic or aesthetic it involved technical problem-solving and experimentation.
Qualified Research Expenses (QREs): Financial Proof
To calculate the tax credit, you must identify and support the costs associated with eligible research activities.
This includes:
Payroll records for employees directly involved in R&D
Timesheets or time-tracking logs showing the percentage of time spent on qualifying activities
Job costing reports that tie labour and material expenses to specific projects
Invoices and contracts for third-party contractors or consultants who supported technical design or engineering components
Each expense must be linked to the qualifying research work on a per-project basis. Vague allocations or broad assumptions are red flags for auditors.
Supporting Evidence: Substantiate the Technical Work
Beyond financial data, architecture firms must provide documentation that supports the technical nature and process of experimentation.
This could include:
Design revisions and iterations
Technical drawings, schematics, or CAD files
Energy models or simulation logs
Blueprints and renderings
Internal emails discussing technical challenges or exploring solutions
Meeting notes or design review documentation
Material or system comparisons with performance trade-offs
This kind of documentation helps demonstrate the elimination of uncertainty and the systematic process of experimentation, which are essential to passing the four-part test.
New IRS Requirements: Deeper Project-Level Detail
Since the TCJA, the IRS has tightened expectations. Now, for each business component (e.g., each building or unique design feature), firms must:
Identify the business component (such as a custom HVAC system or LEED-certified structure)
Map each component to the four-part test, showing how it meets:
Permitted purpose
Technological in nature
Elimination of uncertainty
Process of experimentation
Maintain contemporaneous documentation records that are created during or shortly after the activity, rather than reconstructing them at year-end.
The days of relying on summary spreadsheets or anecdotal reports are over. Audits now focus on whether firms can demonstrate real-time documentation of R&D activity and expense tracking.
Pro Tip: Make Documentation Routine, Not Reactive
To stay audit-ready, architecture firms should integrate documentation into their day-to-day operations, rather than treating it as an afterthought.
Here’s how: Use time-tracking software with project tags for R&D activities Maintain a project folder for each qualifying job with relevant emails, drawings, and testing files Have regular design review meetings and keep notes that highlight technical decision-making Assign a team member or CPA liaison to manage R&D records throughout the year, not just at tax time
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Special Considerations for Small and Startup Architecture Firms
The Alternative Minimum Tax (AMT) has long been the bane of small businesses. Even when a firm earned an R&D credit, it often couldn’t use it if the AMT kicked in.
The good news?
Under the Tax Cuts and Jobs Act, “qualified small businesses” (QSBs) can now use the R&D tax credit against their AMT liability, a massive win for smaller architecture practices. To qualify, your firm must meet the following criteria:
Gross receipts under $50 million over the three preceding tax years
Be a non-public (privately held) corporation, partnership, or sole proprietorship
If your architecture firm falls under this threshold, you can apply the R&D credit even if AMT would typically limit your ability to use it. This effectively makes the credit usable for a much broader range of small firms.
Offset Payroll Taxes Instead of Income Taxes
Another important consideration: If your architecture firm is a startup with little or no income tax liability, you may still be eligible to apply the R&D credit against your payroll taxes, instrumental if you're investing heavily in talent and design work. To qualify for the payroll tax offset:
Your business must be less than 5 years old
Have less than $5 million in gross receipts in the current tax year
If eligible, you can apply up to $500,000 per year (as of 2023) of your R&D credit against the employer portion of Social Security payroll taxes, helping improve cash flow when you need it most. For young architecture firms that hire staff and invest in innovation but have not yet generated significant taxable profits, this is an invaluable cash-preserving tool.
Documentation Is Still Key, Even for Small Firms
Even with these special provisions, small architecture firms must document their research activities and expenses properly to claim the credit.
That includes:
Tracking time and labor costs related to technical design work
Describing project goals and challenges that involved uncertainty
Providing supporting evidence such as:
Design iterations
Drawings
Simulations
Technical discussions
Showing how each qualifying project meets the IRS’s four-part test
While this may feel burdensome at first, the ROI is often substantial, and small firms that build documentation habits early are much better positioned to claim credits year after year as they scale.
Don’t Go It Alone, Specialist Support Matters
The R&D tax credit rules can be nuanced, and IRS scrutiny has increased, particularly in sectors such as architecture. Even small claims can be challenged if not adequately substantiated. That’s why working with a CPA or tax advisor familiar with R&D in architecture is highly recommended.
They can:
Determine eligibility based on your project portfolio
Calculate potential credit amounts
Help build audit-ready documentation
Guide you through applying credits to AMT or payroll taxes
Haven: Your Financial Co-Pilot for Startup Growth
Let your business take flight while Haven manages your financial runway. Built by founders for founders, we handle everything from daily bookkeeping to complex tax filings and R&D credits that put cash back in your pocket, as well as fractional CFO services. Join 400+ startups who've saved millions in tax credits, countless hours of administrative work, and never missed a filing deadline, all while accessing 24/7 Slack support from CPAs who understand the unique challenges of growing businesses. Book a call today to learn how our dedicated team can help you focus on building rather than bookkeeping.
How to Claim the R&D Tax Credit
Before claiming R&D tax credits for architects, understand how the IRS defines qualifying research activities. The IRS’s four-part test establishes the criteria for determining whether a project qualifies for the Research and Development (R&D) tax credit. To meet the requirements, the activities must:
1. Develop or Improve a Product, Process, Technique, or Software
The scope of the R&D tax credit for architects extends beyond traditional product development to encompass any activity aimed at creating something new or enhancing an existing asset. This includes both tangible and intangible items.
2. Address Technical Uncertainty
The IRS requires that qualified research activities seek to discover information that reduces or eliminates technical uncertainty. This involves evaluating different alternatives to achieve a desired outcome and may not be resolved by existing knowledge or readily available information.
3. Use a Process of Experimentation
The IRS requires that qualified research activities follow a systematic process of experimentation. This means that activities should formulate hypotheses, test them, and analyze the results to draw conclusions. Activities that simply collect data or conduct routine tests to confirm existing knowledge do not qualify.
4. Support a Qualified Industry
The IRS defines the qualified industries for the R&D tax credit to include architecture, engineering, and software development. Activities that support the advancement of these fields may qualify, even if they ultimately benefit other industries.
Create a Detailed Checklist to Assess Eligibility
Claiming R&D tax credits for architects requires careful research and thorough documentation. Before you start calculating your potential tax credit, prepare a detailed checklist to assess your eligibility. Start by reviewing your architectural firm’s recent projects to identify potential candidates for R&D tax credits. Collaborate with project managers and technical teams to complete the following tasks:
Identify qualifying projects: Look for recent projects that involved developing or improving a product, process, technique, or software.
Assess the activities: Review the tasks performed on the project to identify any that meet the IRS’s four-part test for qualified research activities.
Document your findings: Maintain detailed records of your assessment to support your R&D tax credit claim.
Document Your Work Thoroughly
The IRS requires detailed records to substantiate your R&D tax credit claims. Lack of proper documentation is one of the most common reasons claims are rejected.
Here’s what to document:
Design and project files: Include drafts, sketches, CAD models, and BIM data showing experimentation and design processes.
Employee activity logs: Maintain records of hours spent on R&D-related tasks, breaking them down by project and activity.
Material costs: Keep receipts and invoices for materials used in testing or design experiments.
Testing data: Include the results of simulations, prototypes, and other experimental tests conducted during the project.
Organize this documentation systematically. Use folders labeled by project name and ensure digital backups are available. This organization will help streamline the claiming process and make it easier to respond to potential IRS inquiries.
Calculate Qualified Research Expenditures (QREs)
Calculate the costs associated with your R&D activities. The IRS allows specific categories of expenditures to be included in your claim:
Wages: Salaries paid to employees who worked on R&D activities. If an employee worked part-time on R&D, include only the proportionate wage.
Supplies: Costs for materials used during experimentation or prototyping.
Contract research: Up to 65% of the costs paid to contractors for qualifying research.
Use payroll data, invoices, and other financial records to create an itemized list of QREs. Double-check all calculations to avoid discrepancies, and ensure you’ve excluded non-qualifying expenses like marketing costs.
Consult with a Tax Professional
The R&D tax credit process can be complex, especially for architectural firms new to this area. Consulting with a tax professional who specializes in R&D tax credits can help:
Identify all qualifying activities and expenses you might overlook.
Maximize your claim while ensuring compliance with IRS requirements.
Navigate the intricacies of the filing process, including choosing the most beneficial filing method.
Look for a professional or firm with experience in architectural claims and verify their expertise by checking for client references or success stories.
Choose the Appropriate Filing Method
The IRS offers two methods for calculating R&D tax credits:
Traditional method: Offers a 20% credit on qualifying expenses exceeding a specified base amount. This method requires detailed historical data on research and development (R&D) expenses.
Alternative Simplified Credit (ASC) method: Provides a 14% credit on qualifying expenses above 50% of the average R&D spending for the past three years. If there’s no prior R&D spending, the credit is 6% of current expenses.
Work with your tax professional to determine which method offers the highest benefit based on your firm’s financial history. For newer firms without substantial R&D history, the ASC method is often more practical.
Prepare and Submit Your Claim
File your claim with the IRS by completing the necessary forms:
Form 6765 (Credit for Increasing Research Activities). This is the primary form used to claim the R&D tax credit. Include detailed information on your QREs, qualifying projects, and the calculation method chosen.
Attach all supporting documentation. Include records of projects, employee activity logs, and financial data to substantiate your claim.
Submit the completed forms with your corporate tax return if you’re claiming payroll tax credits as a start-up, file Form 8974 (Qualified Small Business Payroll Tax Credit for Increasing Research Activities).
Double-check everything before submission to ensure accuracy and completeness. Errors can lead to delays or rejections.
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Book a Call to Learn More About our Accounting Services (Trusted by 400+ Startups)
Let your business take flight while Haven manages your financial runway. Built by founders for founders, we handle everything from daily bookkeeping to complex tax filings and R&D credits that put cash back in your pocket, as well as fractional CFO services. Join 400+ startups who've saved millions in tax credits, countless hours of administrative work, and never missed a filing deadline, all while accessing 24/7 Slack support from CPAs who understand the unique challenges of growing businesses. Book a call today to learn how our dedicated team can help you focus on building rather than bookkeeping.