Domestic Production Activities Deduction

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About the DPAD Program
Companies engaged in manufacturing and other qualified production activities are eligible to take a tax deduction of up to 9% from net income.

Domestic Production Activities Deduction Calculation 
Qualified production activities income (QPAI)
Minus ( – ) Qualified production activities expenses
Equals ( = ) Qualified production activities net income
Times ( x ) The QPA deduction amount
Equals ( = ) The Tentative QPA Deduction


Eligibility For the Section 199 Deduction

  • Based on the IRC Section 199, companies involved in the following types of business may qualify for the Domestic Production Activities Deduction:
  • Manufacturing based in the United States
  • Selling, leasing, or licensing items that have been manufactured in the United States
  • Selling, leasing, or licensing motion pictures that have been produced in the United States
  • Construction services in the United States, including building and renovation of residential and commercial properties
  • Engineering and architectural services relating to a US-based construction project

Capturing the Full Benefit is Not Easy
Many leading tax preparation software packages take an oversimplified approach to the deduction that yield sub-par results. It’s possible to not only under-claim, but to claim incorrectly and increase the chances of an audit. There can be several challenging aspects:

  • Selecting the appropriate methodology
  • Determining what are domestic vs foreign costs
  • Defining what constitutes substantial value

Work with Tax Credit Co.

  • TCC puts a focus on the ever-changing legal landscape pertaining to this specific deduction
  • TCC has experience in this deduction, and with the expenses associated, and can help make many of the challenging determinations
  • TCC is able to evaluate allocation strategies that CPAs may not have experience with
  • TCC will assemble a detailed audit package for clients, because deduction has the potential to be audited
  • TCC can consider development/application of new allocation methodologies when justified by facts/circumstances

 

Download DPAD Tax Credit PDF