Tax Credits Contractors Miss — R&D, WOTC, and Energy Credits

Most business owners understand deductions — expenses that reduce your taxable income. Fewer understand credits — which reduce your actual tax bill dollar for dollar. A $10,000 deduction might save you $3,700 in taxes. A $10,000 credit saves you $10,000.

That's why missing eligible credits is one of the most expensive mistakes we see. Here are three that contractors commonly overlook.

The R&D Tax Credit

When contractors hear "R&D," they think lab coats and Silicon Valley. But the Research and Development Tax Credit applies to far more than technology companies.

If your construction company develops new building techniques, tests alternative materials, designs custom solutions for challenging sites, or improves existing construction processes, you may qualify. The key test is whether you're engaging in experimentation to resolve technical uncertainty — and in construction, that happens more often than you'd think.

Examples we've seen qualify: developing a new foundation approach for difficult soil conditions, engineering custom formwork for an unusual structure, testing energy-efficient building methods, and designing prefabricated components to improve job site efficiency.

The credit is typically 6-8% of qualified research expenditures, claimed on IRS Form 6765. For a contractor spending $500K annually on qualifying activities, that's $30K-$40K in direct tax credits — not deductions, credits.

Work Opportunity Tax Credit (WOTC)

Status update — reviewed August 2026: The Work Opportunity Tax Credit expired December 31, 2025 and is currently in a hiatus, pending Congressional reauthorization. Congress has retroactively reinstated WOTC after previous lapses, but there is no guarantee it happens again — and the IRS retired the prior version of Form 8850 as of March 2026. Bottom line: you can't count on claiming WOTC for a brand-new 2026 hire right now, but you should prepare in case it returns retroactively. Always confirm the current status on the IRS Work Opportunity Tax Credit page before relying on it.

When active, the WOTC provides credits of up to $9,600 per eligible employee hired. Qualifying groups include veterans, individuals receiving government assistance, ex-felons, and long-term unemployed individuals.

In construction — where hiring is constant and turnover is high — the credit adds up fast. Ten qualifying hires in a year could mean $50K-$96K in credits when the program is active.

What to do during the hiatus: keep screening every new hire and collecting the eligibility paperwork. If Congress reinstates WOTC retroactively (as it has before), employers who kept clean records can still certify hires made during the gap. When the credit is active, certification is filed within 28 days of the hire date.

We help our clients keep WOTC screening in their hiring process so that, the moment the credit returns, no eligible hire slips through.

Energy-Efficient Building Credits

The Inflation Reduction Act expanded credits for energy-efficient construction. Contractors who install qualifying systems — high-efficiency HVAC, insulation, windows, lighting, and solar — can access credits under Section 45L (new residential) and Section 179D (commercial buildings).

Section 179D alone can provide deductions of up to $5 per square foot for commercial buildings that meet energy efficiency targets. On a 20,000 square foot commercial project, that's a potential $100K deduction.

Section 45L provides up to $5,000 per qualifying dwelling unit for residential builders meeting Energy Star or Zero Energy Ready Home standards.

These credits reward contractors for doing work they may already be doing — or could easily incorporate into their standard practices.

How to Capture Credits You've Been Missing

The first step is a credit eligibility review — which is something we do with every new client. We look at your hiring practices, your project types, and your construction methods to identify credits you qualify for.

For R&D credits, we may bring in a specialist to conduct a formal study — the cost of the study is typically a fraction of the credits identified.

For WOTC, we help you set up screening processes so every new hire is automatically evaluated for eligibility.

For energy credits, we work with your project data to identify qualifying installations and calculate available credits.

In many cases, we can also go back and amend prior-year returns to claim credits you missed in previous years (typically up to 3 years back).

Credits Are Found Money

Unlike deductions, which reduce taxable income, credits reduce your tax bill directly. A $50K credit is $50K in your pocket. And unlike deductions, many credits can be carried forward to future years if you can't use them all at once.

The R&D credit alone is worth its own deep dive — see the R&D tax credit for construction. Credits are just one lever; our Construction Tax Planning Guide shows how they fit alongside entity structure, depreciation, and retirement, all part of our tax strategy service.

The business owners who capture these credits aren't doing anything different in their operations. They just have an advisor who knows to look for them.