Domestic Production Activities Deduction (DPAD)

Did you know that you could get a tax deduction for manufacturing goods in the United States? As incentive to get manufacturers to produce goods in the United States, taxpayers have the luxury of getting a tax deduction.

How much of a deduction? 

• As of 2010, a taxpayer can have a deduction of up to 9% on either their taxable income, or of their qualified production activities income (QPAI), whichever of the two is lesser.
• Keep in mind, the amount of your deduction cannot exceed 50% of the W-2 wages of the employer, for that taxable year.

What is QPAI? 

• Qualified production activities income is an income from domestic productions.
• In order to calculate your QPAI, it’s your Domestic Production Gross Receipts(DPGR) minus, the sum of:

– Cost of goods sold allocable to the DPGR, and

– Other expenses, losses, or deductions allocable to DPGR

What is DPGR?

• It’s the sum of the gross receipts from:

– The construction of real property done in the U.S. under your construction                                                                              trade or business.

– Engineering or architectural services done in the U.S. under your engineering                                                                         or architectural services trade or business for construction of real property in                                                                         the U.S.

– Any lease, license, rental, exchange, or sale of qualifying production property                                                                         you manufacture, any qualified film you produce, or natural gas, electricity,                                                                             or potable water you produce in the U.S.

Alright so let’s recap: Domestic production activities deduction (DPAD) can be up to 9% of either your qualified production activities income (QPAI) or your taxable income. To find (QPAI), you need to know your domestic production gross receipts (DPGR).

*Keep in mind your (DPAD) cannot exceed more than 50% of W-2 wages the employer paid for that taxable year.

If you are a business owner that manufactures goods in the United States, you may want to look into this deduction. Delerme CPA is always willing to help anyone looking to expand and grow your business financially. We’ve helped people use DPAD to help them save money to help expand their business(s). If you have any questions or concerns give us a call. Have a nice day.