Before the Ball Drops: Year-End Tax Planning for AEC Firms

Your pipeline is full, but your bank balance doesn’t show it. Your tax projection just came in higher than expected. Sound familiar?

For architecture, engineering, and construction (AEC) firms, project performance, taxable income, and cash don’t always move together. A slower year doesn’t guarantee a smaller tax bill, either. That’s why year-end tax planning matters: it helps you find gaps, identify potential tax savings, and make informed decisions while there’s still time to act.

Recent federal tax changes have created real opportunities worth evaluating this year. Which opportunities are a good fit for your firm largely depends on your results, your investment plans, your ownership structure, and what you expect from 2027.

Forecast First, Deduct Second

Before focusing on deductions, update your projected income through December 31. Review collections, work in progress, project margins, compensation, and major expenses anticipated in the fourth quarter. Then connect the resulting forecast to each owner’s personal tax situation.

Consider an engineering firm with higher taxable income, but lagging collections. Its owners face larger estimated payments while the firm still needs cash to cover payroll.

Identifying that gap early creates time to evaluate potential tax-saving opportunities to reduce taxable income and coordinate distributions, tax payments, and financing to manage any remaining cash needs. Proactively identifying this situation gives you time to potentially reduce your taxable income and, if not, to coordinate distributions, tax payments, and financing.

Strong Year or Slower Year? Different Playbooks.

A strong financial year is usually about managing the bill through timing, investments, and owner-level planning. A slower year is a different conversation.

If income is likely to rebound in 2027, accelerating every available deduction may not produce the results you expect. Compare across both years before deciding when to incur expenses or claim deductions. Slower years may create opportunities for owner-level acceleration of income to reduce overall lifetime tax bills (instead of focusing on minimizing any one year).

Buying Equipment? “Ordered” Isn’t “Placed in Service”

Restored 100% bonus depreciation can allow immediate federal deductions for qualifying property acquired and placed in service after January 19, 2025. For AEC firms, that puts planned equipment and technology purchases squarely on the table.

But placing an order before December 31 isn’t necessarily enough. Property generally must be ready and available for its intended use to be considered placed in service. Delivery schedules, installation, and operational readiness all matter.

For example, consider a construction firm replacing equipment. The deduction may improve the economics of a purchase you already needed, but you’re still spending real money. In these situations, a firm should weigh financing, cash reserves, and state tax treatment alongside the federal benefit.

Could Project Work Qualify for Additional Tax Benefits?

Domestic research expenditures are generally eligible for immediate federal deduction under Section 174A. For architecture and engineering firms, that’s a good reason to revisit qualifying activities, project records, and previously capitalized research costs.

Keep two things in mind:

• The research deduction and the R&D credit are separate provisions. Each has its own eligibility requirements and documentation standards. Technical work doesn’t automatically qualify for a credit, and foreign research is still treated differently.
• A favorable federal result doesn’t necessarily carry through to every state where your firm files a return.

Section 179D: The Cutoff has Passed for New Construction Starts

Section 179D is still relevant for eligible projects, including potential allocations to qualifying designers. However, the deduction doesn’t apply to property whose construction begins after June 30, 2026.

That makes project-by-project review essential. Check construction timing, eligibility, allocation documentation, certification, and applicable wage requirements. A project completed after the cutoff may still qualify if construction began beforehand. Completion date alone doesn’t settle the question.

For AEC firms involved in energy-efficient building design, reviewing the status and documentation of potentially eligible projects can help determine whether a deduction remains available.

Year-End Tax Planning Checklist for AEC Firms

As December 31 approaches, use these questions to focus your discussions with your tax and financial advisors:

• What does our updated income projection look like through year-end?
• Which equipment purchases will actually be placed in service by December 31?
• Have we reviewed previously capitalized research costs?
• Which projects began construction before July 1, 2026, and meet the other Section 179D requirements?
• Have our owners reviewed estimated payments, retirement contributions, charitable giving, and state tax elections?

Answering these questions now can help your firm move into year-end with a clearer understanding of its tax position, cash requirements, and available planning options.

Don’t Stop Planning on December 31

Year-end decisions should account for both the tax rules in effect today and the possibility of legislative changes ahead.

The November 3 midterm elections will help shape the 2027 tax outlook. Control of the House and Senate influences which proposals can advance and how the federal legislative process unfolds. Election outcomes don’t change tax law on their own, but they could affect which proposals receive attention and have a path toward enactment.

For now, firms should build their plans around current law, monitor developments that could affect future decisions, and avoid relying on proposed changes that haven’t been enacted. A thoughtful strategy should address immediate opportunities while keeping longer-term business and ownership goals in view.

Walk Through Your Year-End Tax Planning with SNZweig

What tax planning opportunities should AEC firms evaluate? The answer depends on your firm’s financial results, investment plans, project activities, and individual ownership circumstances.

Join the SNZweig tax advisory team to evaluate your year-end position, identify savings, and build a proactive strategy before December 31.