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Haigler CPA Group

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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

Architects: common questions

Work in progress, retainers, subconsultants and projects in other states.

Should my architecture firm be on the cash method or the accrual method?

It decides whether a December heavy with unbilled work is this year's income or next year's. Neither is better in the abstract, but the choice is not one you restate each year on the return: changing it is a filing with its own rules, so the moment to look is while the choice is still open. Architecture firms.

Is a retainer taxable when I receive it?

A deposit taken before the phase is performed is an advance payment. An accrual-method firm can often defer part of it into the following year; a cash-method firm generally cannot. Worth knowing which applies before the engagement letters for a large project go out.

Do the long-term contract rules apply to design services?

Design services supplied in connection with a building project do not always sit where a pure service business sits. Whether any of your contracts fall under those rules is a question about the contracts you actually sign, and it is better answered deliberately than discovered on examination. Architecture firms.

Consultants bill through me. Does that inflate my revenue?

It inflates gross receipts without adding profit. That does not change taxable income, but gross receipts is the figure that decides method-of-accounting eligibility, feeds state apportionment and drives some local business license fees. It also puts information reporting for every consultant on your side. Architecture firms.

How do I treat reimbursable expenses?

As 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.

I am registered to practice in another state. Do I have to file a return there?

Registration alone is not a filing obligation, but registration plus a project plus staff on site usually is. Most states now source service revenue to where the client receives the benefit, which for a building means the state the building is in. Architecture firms.

Will my firm owe withholding for nonresident owners?

Some states require it once the firm has income sourced there, and some allow a composite return instead. Both are cheap to handle in the first year of a project and expensive to unwind in the fourth. Business tax.

A firm called offering me a research credit study. Is it real?

The credit is real; most cold-call claims are not. Routine adaptation of an approach the firm already uses generally fails, and so does work under a contract that pays you whether or not the technical problem is solved. A credible claim is documented while the work happens, not reconstructed afterwards on a percentage fee. Architecture firms.

How are research costs deducted now?

The treatment has changed more than once in recent years, so we work from the rule in force for the year being filed rather than from a summary written when the rule was different.

How are principals in a PLLC taxed?

Guaranteed payments and distributive shares are generally subject to self-employment tax and are paid in through the principal's own quarterly estimates, not firm payroll. An S corporation principal is on the other model, taking wages first. Entity choice.

Can my firm deduct software subscriptions and workstations?

Yes, though not all on the same schedule. Subscriptions, perpetual licenses and hardware are treated differently from each other, and for a firm replacing seats in bulk the timing is worth a conversation before the purchase order.

Do you work with architecture firms outside Charleston?

The tax work is not geographic, and multi-state filings are part of it. The office is in Charleston and meetings are by appointment. Book a consultation.

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