Who we work with
We work with owners of engineering, architecture, surveying, and related design firms bringing in $1 million or more in annual revenue: civil, structural, mechanical, electrical, and environmental engineering, architecture and interior design, from founder-led firms to firms with several principals.
Firms at this size often have principals in high brackets, project revenue that’s hard to time, and an ownership transition somewhere on the horizon. Each of those is a planning opportunity.
The tax and financial challenges design firm owners face
Engineering and architecture firms have tax rules that differ from other professional firms, in both directions.
The research credit is often missed
Developing new designs, processes, or technical solutions can qualify for the federal research credit, but only for work your firm bears the risk on. Contract terms decide a lot.
QBI works differently for you
Engineering and architecture are left off the list of specified service fields, so owners above the income limits can still get the 20% QBI deduction, subject to the wage and property limits.
Project revenue and timing
Retainers, progress billing, and unbilled work in progress affect when income is taxed. Your accounting method should fit how you bill.
Owner pay and principals
Salaries, distributions, and how several principals share profit affect payroll tax, retirement contributions, and the QBI wage limit.
Work in other states
Projects and licensed staff in other states can mean state income tax filings, payroll withholding, and registrations there.
Ownership transition
Selling to the next generation of principals, to an ESOP, or to a larger firm each brings different taxes and timelines. The best exits are planned years ahead.
Strategies that often fit engineering and architecture firms
Every business is different, and we only recommend what fits your numbers and your goals. These are strategies that often come up for owners like you.
- The research credit and Section 174AQualifying design and development work can earn a federal credit, and domestic research costs can be deducted right away again.
- The 20% QBI deductionBecause engineering and architecture aren’t specified service fields, wages and structure can help owners keep this deduction at higher incomes.
- S corp reasonable compensationSet principals’ salaries to hold up to IRS scrutiny while supporting the QBI wage limit and retirement contributions.
- The Oklahoma PTE electionOklahoma firms taxed as S corps or partnerships can turn state income tax into a federal business deduction.
- A cash balance planPrincipals 45 and up may be able to deduct far more for retirement than a 401(k) alone allows.
- Section 179 and 100% bonus depreciationSurvey equipment, drones, plotters, computers, and software can often be deducted in the year they’re placed in service.
Advanced strategies for higher-income owners
Owners planning a transition, or with growing estates, often need more than the basics.
- Selling to an ESOPAn ESOP lets employees buy the firm over time, and a C corp owner may be able to defer the tax on the sale with a Section 1042 rollover.
- Selling your firmAsset vs. stock sale and how the price is allocated change the tax on the same deal.
- C corp vs. S corpRetaining profit at the 21% corporate rate can make sense for growing firms, and an ESOP sale with Section 1042 requires a C corp.
- The mega backdoor RothIf your 401(k) allows after-tax contributions and conversions, principals can move much more into Roth savings.
- Lifetime gifts and SLATsMove future growth out of your estate under the $15 million per person exemption.
- Donor-advised fund bunchingGroup several years of giving into one year so your gifts still lower your taxes.
Everything under one roof
One monthly Tax Plan covers your business and your personal taxes. Plans start at $475 per month and are priced by complexity, and you’ll know your price before you commit.
- Year-round tax planningWe project your tax bill all year and plan around projects, hiring, equipment, and retirement contributions before deadlines pass.
- Business and personal returnsYour firm’s return and your personal return, included in your plan.
- BookkeepingMonthly books that track revenue and costs by project and the time records the research credit needs.
- PayrollEngineers, architects, technicians, and staff, including employees in other states.
- 1099sPrepared and filed for subconsultants and vendors who need them.
- Quarterly estimated paymentsFederal and state amounts calculated for you, with personal and business taxes shown separately.
- IRS audit protection and representationIf a notice or audit comes, we represent you before the IRS and handle it with you.
- CFO-style reportingClear reports on profit, cash, utilization, and how each project and principal performs.
- Direct access to your advisorCall before you decide, not after.
An illustrative example: the research credit for an engineering firm
Picture an engineering firm taxed as an S corp. This year it has $600,000 of qualified research expenses, mostly engineers’ wages for developing new designs on projects where the firm bears the risk and keeps rights to its work. Its average for the prior three years was $500,000. The firm uses the alternative simplified credit.
For illustration purposes. Tax law may change, which may change these calculations slightly.
| Amount | |
|---|---|
| Qualified research expenses this year | $600,000 |
| Less 50% of the prior 3-year average ($500,000 × 50%) | −$250,000 |
| Amount above the base | $350,000 |
| Research credit at 14% | $49,000 |
| Credit after the reduced-credit election (× 79%) | $38,710 |
The credit flows through to the owners and can lower their federal income tax by about $38,710 dollar for dollar, subject to the usual limits. With the reduced-credit election, the firm doesn’t have to cut its Section 174A deduction for the same costs. The credit is federal; Oklahoma tax is figured separately.
Work a client pays for no matter how it turns out, or where the client keeps all the rights, is generally “funded research” and doesn’t count. Contract terms and good records of who worked on what are what make the credit hold up. We check both before you claim it.
Illustrative example. The firm and figures above are hypothetical, used to explain how the strategy works. They are not a client and not a promise of results. The example assumes all $600,000 is qualified, none of the work is funded research, the 21% reduced-credit election under Section 280C(c), and that the owners can use the full credit. This page is educational and is not tax advice for your situation.
Questions engineering and architecture firms ask us
Do engineering and architecture firms get the QBI deduction?
Yes, often even at high incomes. Engineering and architecture are not specified service fields under the QBI rules, so the deduction doesn’t phase out the way it does for law or health care. Above the income limits it is capped by W-2 wages and property, which is why owner pay matters.
Can my firm claim the research credit for client projects?
Sometimes. Work qualifies only if your firm bears the financial risk if it doesn’t succeed and keeps substantial rights to the results. Fixed-fee contracts are more likely to qualify than time-and-materials work that’s paid regardless. We review your contracts and records before you claim it.
Can I sell my firm to my employees?
Yes. Selling to key employees directly or through an ESOP are both common paths for design firms. An ESOP can let a C corporation owner defer the tax on the sale. We look at your profit, people, and timeline to see which fits.
Does the Section 1202 small business stock exclusion apply to my firm?
Generally no. Engineering and architecture are among the fields excluded from Section 1202, so stock in a design firm usually doesn’t qualify for the exclusion when it’s sold. Other exit strategies still apply.
Do you work with firms outside Oklahoma?
Yes. We’re based in Norman and fully virtual, and we work with firm owners in Oklahoma and beyond, including firms with projects and staff in several states.
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