Inventive design, potential tax savings: R&D credits for architects

By Steve Forbes, Jr. | Managing Partner of Forbes & Company

When most people hear “research and development,” they picture lab coats, software engineers or pharmaceutical companies, so it’s easy to assume the R&D tax credit has nothing to do with an architecture firm. In reality, a lot of the work that happens between a client’s first conversation and a finished set of construction documents involves exactly the kind of technical problem solving the credit was designed to reward, from modeling the energy performance of a new building envelope to engineering a facade system nobody has built before.

At Forbes & Company, professional service businesses are one of our core specialties, and architecture firms are a big part of that group. From our offices in Alpharetta, Georgia and Charleston, South Carolina, we help firms across the country understand whether their design work qualifies, what the credit could be worth and how to build the kind of documentation that holds up if the IRS ever asks questions. Here’s what every firm owner and principal should know.

What is the R&D tax credit?

How does the federal research credit work for architecture firms?

The federal research credit, formally called the Credit for Increasing Research Activities under Section 41 of the Internal Revenue Code, is a dollar-for-dollar reduction in federal income tax for businesses that spend money on qualified research in the United States. Because it’s a credit rather than a deduction, every dollar of credit reduces your tax bill by a full dollar instead of just lowering your taxable income.

Most architecture firms are organized as partnerships, LLCs or S corporations, which means the credit generally flows through to the owners and is used on their personal returns. Credits that can’t be used right away can usually be carried back one year or forward up to 20 years, so even a firm whose owners can’t use the full credit this year may still benefit later.

How did the One Big Beautiful Bill Act change research costs?

The One Big Beautiful Bill Act (OBBBA) restored the ability to immediately deduct domestic research and experimental costs under new Section 174A, starting with tax years beginning after December 31, 2024. Before that change, firms had to spread those costs over five years, which made doing research surprisingly expensive from a tax standpoint. OBBBA also tied the two provisions together, so expenses now need to be treated as domestic research costs under Section 174A to count toward the credit, and claiming the full credit generally requires reducing your research deduction by the amount of the credit unless you elect a smaller credit instead. We’ll cover that election in the section on what the credit is worth.

What kinds of architectural work may qualify?

The credit doesn’t reward a building for being beautiful or a project for being large. It rewards the process of resolving genuine technical uncertainty, which is why the same firm can have one project that qualifies and another that doesn’t. Work that commonly qualifies at architecture firms includes:

• Energy and sustainability design that tests alternative envelope, glazing, shading or mechanical strategies through energy modeling to hit performance targets such as net-zero, passive house or specific certification goals
• Structural innovation such as long spans, cantilevers, mass timber, unusual geometries or seismic and wind solutions that required evaluating multiple approaches
• Custom building systems and details, including curtain wall and facade systems, waterproofing assemblies, acoustic solutions and connections that had to be designed and validated rather than pulled from a catalog
• Daylighting, airflow and thermal comfort studies that rely on simulation and iterative design to meet performance criteria
• Parametric and computational design that uses scripting or BIM-based optimization to solve technical problems involving structure, materials or performance
• Integration challenges where architectural, structural, mechanical and electrical systems had to be coordinated in a way the team hadn’t solved before
• Internal tools and software a firm develops to improve its own design process, such as custom scripts, plug-ins or analysis tools

Much of this work tends to happen during schematic design and design development, when the team is still evaluating options. By the time a project reaches construction documents and construction administration, the technical uncertainty has often been resolved, although late-stage redesign to solve a newly discovered technical problem can still qualify.

What architectural work usually doesn’t qualify?

Several categories are excluded by law or tend to fall short in practice. Design choices driven by style, taste, cosmetic or seasonal factors don’t count, so selecting finishes or refining a building’s appearance won’t qualify on its own. Routine code compliance, adapting an existing design to a new site with only minor changes and reproducing a prior design generally don’t qualify either, and neither do activities like surveys, routine data collection, marketing and general project management.

How does funded research affect architecture firms?

This is one of the most important issues for design firms, because nearly all of your work is performed for a paying client. Research that’s funded by someone else is excluded from the credit, and under Treasury Regulation 1.41-4A(d) your research is generally treated as funded unless two things are true:

• Payment is contingent on the success of the research, meaning your firm bears the financial risk if the technical solution doesn’t work
• Your firm retains substantial rights in the research, meaning you keep the right to use what you learned on future projects without paying for it

Courts have looked closely at architecture contracts on both of these points. In one case, the Tax Court found that the sports and entertainment architecture firm Populous wasn’t performing funded research under its fixed-price contracts. More recently, in a 2026 decision involving an internationally known firm that designs supertall, highly sustainable towers, the court found the firm kept substantial rights on projects where it retained copyright in its designs while licensing them to clients, but it also concluded that fixed-fee, milestone-based payment terms didn’t make payment contingent on the research succeeding. That meant the research on those projects was treated as partially funded, so only costs beyond what the client funded could count. The practical takeaway is that the funded research analysis happens contract by contract, and your owner-architect agreements, intellectual property clauses and payment terms can make a real difference in what you’re able to claim.

What does the IRS require a firm to evaluate for each business component?

What is a business component?

The IRS doesn’t evaluate your firm’s research as one big pool of activity. Instead, everything is analyzed at the level of the business component, which is the product, process, computer software, technique, formula or invention your research is intended to develop or improve. For an architecture firm, a business component might be the design of a specific building, a particular building system within that design, a proprietary detail or an internal software tool.

What has to be evaluated for each component?

For every business component you use as the basis for a credit claim, your firm needs to be able to show the following:

1. That the component meets all four parts of the qualified research test on its own. The test is applied separately to each business component, and if the overall project doesn’t qualify, the IRS applies a “shrink-back” rule that narrows the analysis to the most significant subset of elements that does, such as a single building system rather than the entire building.
2. Whether the research was funded, based on the contract terms for that specific project.
3. Which research activities were performed, who performed each one and what information each person was trying to discover.
4. How much was spent, with wage costs broken out by whether employees were performing the research directly, directly supervising it or directly supporting it.

What changed on Form 6765 for 2026?

The credit is claimed on Form 6765, Credit for Increasing Research Activities, and the IRS has overhauled it to require much more detail. Section G, which asks for business component information, was optional for tax years beginning in 2024 and 2025, but it’s required for tax years beginning after 2025. Firms that must complete it generally report the business components that make up at least 80% of their qualified research expenses, up to 50 components, along with the information each component was meant to uncover. Smaller filers, generally those with $1.5 million or less in qualified research expenses and $50 million or less in gross receipts, are exempt from the Section G requirement, but every firm still needs the underlying records to support its claim.

What if you’re claiming the credit on an amended return?

If you’re claiming or increasing the credit through an amended return, the IRS requires five specific items of information for the refund claim to be considered valid. You’ll need to identify every business component the claim relates to, the research activities performed for each one, the individuals who performed each activity and the information each person sought to discover, along with your total qualified wages, supplies and contract research expenses for the year. Claims missing these items can be rejected outright, so it’s well worth gathering them before you file.

How the four-part test determines eligibility

An activity counts as qualified research only if it passes all four of the following tests, which are explained in detail in Treasury Regulation 1.41-4.

1. The permitted purpose test

The research has to be intended to create a new or improved business component in terms of its function, performance, reliability or quality. For an architect, that might mean designing a building that uses less energy, carries loads more efficiently, performs better acoustically or holds up better in hurricane-force winds. Improvements that are purely aesthetic don’t satisfy this test.

2. The elimination of uncertainty test

At the start of the work, your team has to be uncertain about how to achieve the result, the right method for getting there or the appropriate design. A firm that already knows exactly how to detail a familiar wall assembly isn’t facing qualifying uncertainty, while a firm that doesn’t yet know whether a new mass timber structure can meet span, fire and vibration requirements likely is. This test is sometimes called the Section 174 test, since it reflects whether the costs are research and experimental expenses in the first place.

3. The technological in nature test

The process used to resolve the uncertainty has to rely on principles of the hard sciences, such as engineering, physics, materials science or computer science. Energy modeling, structural analysis, computational fluid dynamics and daylighting simulation all fit naturally here, while decisions based on market preferences or visual appeal don’t.

4. The process of experimentation test

Finally, substantially all of the activities, which the regulations define as at least 80%, have to be part of a process of experimentation. That means identifying the uncertainty, developing one or more alternatives to resolve it and evaluating those alternatives through modeling, simulation, systematic trial and error or similar methods. Running multiple energy models to compare glazing ratios, testing several connection details through structural analysis or building and testing a physical mockup of a facade panel are all good examples of what this looks like in practice.

What expenses count toward the credit?

Once you’ve identified qualifying activities, the next step is figuring out which costs count as qualified research expenses (QREs). There are four main categories:

• Wages: Taxable W-2 wages paid to employees who perform, directly supervise or directly support qualified research. For an architecture firm, that usually includes project architects, designers, BIM and computational specialists and the principals who directly oversee the technical work. Time spent on marketing, business development, billing and general administration doesn’t count, so it’s important to separate research time from everything else.
• Supplies: Materials used and consumed in the research process, such as materials for physical mockups, prototypes or testing. Land, depreciable equipment and general office supplies are excluded.
• Contract research: Generally 65% of the amount paid to U.S.-based outside parties who perform qualified research on your behalf, such as structural engineers, energy modelers, acoustical consultants or testing labs, as long as your firm bears the financial risk and retains substantial rights in the results.
• Computer use: Amounts paid to others for the right to use computers in qualified research, which can include certain cloud computing costs for intensive simulation and rendering work.

One point that catches many design firms off guard is how owner compensation is treated. Partners and members of firms taxed as partnerships typically receive guaranteed payments or draws rather than W-2 wages, and those amounts generally don’t count as wage QREs, even when the partners do a significant share of the design work. That doesn’t make the credit unavailable, but it can reduce the amount and is worth factoring into your expectations and, in some cases, your entity planning.

How much is the R&D credit worth?

How is the federal credit calculated?

Firms can choose between two calculation methods. The regular credit equals 20% of qualified research expenses above a base amount that’s tied to your historical research spending and gross receipts. Most firms use the simpler alternative simplified credit (ASC), which equals 14% of the amount by which this year’s QREs exceed 50% of your average QREs over the prior three years. If you didn’t have QREs in any one of those three prior years, the ASC is 6% of this year’s QREs instead.

Here’s a simple example. Suppose an architecture firm has $500,000 of QREs this year and averaged $400,000 over the prior three years. Half of that average is $200,000, so the ASC is 14% of the $300,000 difference, or $42,000.

What is the reduced credit election?

Because of the OBBBA changes, claiming that full $42,000 generally means reducing your deduction for research expenses by the same amount. Alternatively, your firm can make a reduced credit election under Section 280C on a timely filed return, which shrinks the credit by 21% (to about $33,180 in the example above) but leaves your research deduction intact. Which approach saves more depends on your firm’s structure and the owners’ tax brackets, so it’s worth modeling both before you file.

Can a smaller firm use the credit against payroll taxes?

Yes, in many cases. A qualified small business, generally one with less than $5 million in gross receipts for the year and no gross receipts before the five-year period ending with the current year, can elect to apply up to $500,000 of its research credit each year against the employer’s share of Social Security tax, and then Medicare tax, according to IRS guidance on the payroll tax election. The election is made on Form 6765 with a timely filed return, and the credit is then claimed on the firm’s quarterly payroll returns using Form 8974. This option can be especially valuable for younger firms whose owners don’t have enough income tax liability to use the credit right away, although it can only be elected for a limited number of years.

What documentation should an architecture firm maintain?

A defensible credit is built throughout the year rather than reconstructed at tax time. Architecture firms actually have an advantage here, because so much of the design process already produces a paper trail. The key is organizing it so it clearly connects people, activities and costs to each business component. A strong documentation file typically includes:

• A list of business components for the year, with a short description of the technical uncertainty each one involved and the information the team was trying to discover
• Design iteration records, such as successive energy models, structural analyses, simulation outputs, sketches and BIM model versions that show alternatives being evaluated
• Meeting notes, design review comments and consultant correspondence that capture technical problems as they came up and how the team worked through them
• Mockup and testing results, including photos, reports and notes on what worked and what didn’t
• Time records by project and activity, ideally coded so research work can be distinguished from administration, marketing and routine production
• Payroll records showing W-2 wages for each person included in the claim, along with their role in the research
• Client contracts with payment terms, acceptance provisions and intellectual property clauses, since these drive the funded research analysis
• Consultant agreements and invoices for any contract research, including the terms that show who bears the risk and who keeps rights to the results
• Supply receipts tied to specific projects or mockups
• Historical QREs and gross receipts for the prior years used in your base calculation

Contemporaneous records carry far more weight than summaries written after the fact, so we recommend building research tracking into your existing project setup. Many firms find it helpful to add simple time codes for research activity and to keep a running log of technical challenges for each project during schematic design and design development, which makes Section G reporting much easier when it’s time to file.

How do state research credits work?

Many states offer their own research credits on top of the federal credit, and most of them borrow the federal definitions of qualified research and qualified research expenses. State credits usually apply only to research physically performed within the state, so firms with offices in more than one state need to track where the work actually happened. Here’s how the two states where Forbes & Company has offices approach it.

Does Georgia offer a research tax credit?

Yes. Georgia’s research tax credit equals 10% of Georgia qualified research expenses above a base amount that’s calculated using your Georgia gross receipts, and you must claim and be allowed the federal credit for the same year. The credit can offset up to 50% of your Georgia net income tax liability after other credits, and excess credit can be applied against Georgia payroll withholding. For credits generated in tax years beginning on or after January 1, 2025, unused amounts can be carried forward five years, down from the ten years allowed for earlier credits.

One important wrinkle is that Georgia limits the credit to businesses engaged in certain industries, including manufacturing, warehousing and distribution, processing, telecommunications, broadcasting, tourism and research and development. An architecture firm should look carefully at whether its operations fit within that definition before counting on the Georgia credit, which is a conversation we’re happy to have with you.

Does South Carolina offer a research tax credit?

Yes, and it’s simpler than Georgia’s. South Carolina’s research expenses credit equals 5% of the qualified research expenses your firm incurs in South Carolina, with no base amount to calculate, as long as you claim the federal credit for the same year. The credit is generally limited to 50% of your South Carolina tax liability after other credits, and unused amounts can be carried forward for up to ten years. Because there’s no incremental requirement, a firm with steady research spending in its Charleston-area office may find the South Carolina credit especially valuable.

Your architecture firm R&D credit checklist

Before year-end and before you file, work through the following with your tax advisor:

• Identify the projects and design challenges from this year that involved real technical uncertainty
• Define your business components and apply the four-part test to each one
• Review client contracts for payment terms and intellectual property rights that affect funded research
• Code time records so research activity is separated from administration and marketing
• Gather W-2 wage data, consultant invoices, supply receipts and computer use costs for the claim
• Collect three years of historical QREs and gross receipts for the credit calculation
• Model the full credit against the reduced Section 280C credit before your return is due
• Confirm whether your firm qualifies for the payroll tax election as a qualified small business
• Prepare for Section G business component reporting on 2026 returns
• Evaluate Georgia and South Carolina credits based on where your research was performed

Frequently asked questions

Can architecture firms really claim the R&D tax credit? Yes. Design work that resolves technical uncertainty through modeling, simulation, analysis or testing can qualify, as long as it meets the four-part test, isn’t excluded as funded research and is well documented.

Does every project at an architecture firm qualify? No. Qualification is determined business component by business component, so a technically challenging project may qualify while a routine or largely repeated design may not.

How much is the R&D credit worth for an architecture firm? Under the alternative simplified credit, the federal credit is generally 14% of qualified research expenses above half of your three-year average, or 6% if you’re new to claiming it, and state credits like South Carolina’s 5% credit can add to that.

Do partners’ guaranteed payments count toward the credit? Generally not. Only W-2 wages count as wage QREs, so guaranteed payments and draws paid to partners usually aren’t included even when the partners perform research.

Let Forbes & Company help you turn design innovation into tax savings

Forbes & Company is a family-owned accounting firm that’s been client-focused since 1997, and professional service businesses, including architecture firms, are among the clients we know best. Whether your firm is in the greater Atlanta area, the Charleston area or anywhere across the United States, we’d love to help you identify qualifying work, put the right documentation in place and claim the credit your inventive design work has earned. Contact our team for more information.