By Martin E. Prendergast
Gray, Gray & Gray, LLP
While the recently enacted Inflation Reduction Act is making headlines for its energy and healthcare facets – along with a big ramp up in IRS muscle – there are several provisions that could benefit practitioners in the architectural and engineering fields. Here are some highlights of interest for the industry.
- Section 179D Energy Efficient Commercial Building Deduction– The maximum allowable deduction has increased to $5 per square foot of building area on qualifying projects starting in 2023. A&E Firms and Design-Build Contractors are also now eligible to receive 179D deductions for their design work on tax-exempt entities, such as charitable organizations, churches, and private universities in addition to government entities and local municipalities. This major addition of tax-exempt entities bolsters the existing eligible projects list that already includes federal, state, and local government owned buildings.
- Real Estate Investment Trusts – REITs can now utilize 179D deductions (E&P).
- 45L Tax Credits– The maximum allowable benefit has increased to $5,000 per dwelling unit in 2023. This is applicable to all residential developments initially leased or sold in 2023. In addition, residential developments four stories or higher can now qualify for both 179D & 45L tax credits. These tax credits have also been extended through 2032.
- R&D Tax Credits– Start-up companies (less than five years old, with less than $5 million in gross receipts) may be able to use these credits to offset up to $500,000 in payroll tax per year, which also includes the Medicare portion of payroll taxes.
- Transfer Pricing Strategies– Firms may limit the negative impact on the 15% minimum tax applied through the Inflation Reduction Act.
Of course, let’s not forget that the $80 billion budget increase for the IRS will likely increase the number of audits of big corporations, pass-through entities, high-net-worth individuals, and cross-border activities. Now is the time to be very circumspect in record keeping, reporting, and accurate tax filing.
The Inflation Reduction Act is shining a spotlight on taxes. Which makes it more important than ever to take a more strategic approach to tax planning in order to take advantage of available credits, ensure compliance with new and updated provisions, and to make sure budgeting and spending align with your firm’s long term goals.
Martin Prendergast is a Senior Manager in the Architecture, Engineering & Design Practice Group at Gray, Gray & Gray Certified Public Accountants and Advisors in Canton, Mass. He can be contacted at (781) 407-0300 or at email@example.com