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CPA Services for Architecture Firms

An architecture firm's tax position is shaped by two things that have nothing to do with design: when a fee is earned relative to when it is invoiced, and how many states the firm is registered to work in. Both are far easier to settle at the start of a project than in the week before a return is due.

Fees are earned before they are collected

Work in progress is the number that moves

Hours worked on a phase that has not yet been invoiced are real value sitting outside the accounting records of a firm on the cash method, and inside them for a firm on the accrual method. A December heavy with unbilled work therefore produces two different taxable incomes depending on nothing but which method you are on. That method is not a preference you restate each year; changing it is a filing with its own rules, so the useful moment to look at it is while the choice is still open.

Retainers and money taken at the front of a phase

A deposit collected before the work is performed is an advance payment. An accrual-method firm can often push part of it into the following year; a cash-method firm generally cannot. Neither answer is better in the abstract — what matters is knowing which one applies before the engagement letters for a big project go out.

Contracts attached to construction

Design services supplied in connection with a building project do not always sit where a pure service business sits for tax purposes. Whether any of your contracts fall under the long-term contract rules is a question about the contracts you actually sign, and it is worth answering deliberately rather than assuming either result and finding out on examination.

Consultants, reimbursables and what counts as your revenue

Subconsultants billed through the firm

Structural, MEP and civil consultants invoiced through you and rebilled to the owner inflate revenue without adding profit. That does not change taxable income, but it does change the gross receipts figure — and gross receipts is the test that decides method-of-accounting eligibility, feeds state apportionment, and drives some local business license fees. It also creates information reporting obligations to every consultant you pay.

Reimbursable expenses

Printing, models, travel and permit fees rebilled to a client are income when they come back to you and a deduction when you pay them, and the two do not always land in the same year. Where the rebilled item is a tangible good rather than a service, there can be a sales tax question attached to it as well.

Projects in other states

Registration to practice in another state is not the same thing as a tax filing obligation, but a registration plus a project plus staff on site is usually enough to create one. Most states now source service revenue to where the client receives the benefit, which for a building means the state the building is in, not the studio the drawings were made in. What follows is an apportioned return, sometimes withholding on behalf of nonresident owners, and occasionally a composite filing. The cost of catching this in the first year of a project is small; the cost of catching it in the fourth is not.

The research credit pitch, and what it actually asks for

Architecture firms are cold-called about the research credit constantly. Some design work does qualify. A great deal of it does not, and two things sink most claims: work that is routine adaptation of an approach the firm already uses, and contracts under which the firm is paid regardless of whether the technical problem is solved, which puts the risk on the client rather than on you. A credible claim is documented project by project and person by person while the work happens, not reconstructed afterwards by a specialist firm working on a percentage. How research costs are deducted has also changed more than once in recent years, so we work from the rule in force for the year in question. If we do not think a defensible claim is there, we will say so before an engagement rather than after.

How the firm pays its principals

Principals in a partnership or PLLC take guaranteed payments and a share of profit, both generally exposed to self-employment tax, and both requiring quarterly estimates paid personally. A principal in an S corporation takes wages first and distributions after. Health insurance and retirement contributions are treated differently in each, which is usually where the actual money is, and the professional entity rules in South Carolina constrain the shape of the entity itself.

Where this fits with the rest of the practice

Business Tax — partnership and corporate returns, multi-state filings.
Bookkeeping Services — project-level records, work in progress and the monthly close.
Tax Planning & Advisory — method of accounting, entity choice and principal compensation.
Personal Tax — the principals' own returns, prepared alongside the firm's.

The services behind this

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