Produce Section 199 deductions from scratch

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in Small Business Tax,Small Business Tax Deduction Strategies

One of the biggest tax deductions for businesses is the Section 199 deduction.

Strategy: If at first you don’t succeed, try, try, again. This so-called “manufacturing deduction” can provide an effective tax rate cut of up to 3.15%.

A new district court case shows the kind of “wriggle room” a nontraditional manufacturer may have (see below).

Here’s the whole story: A manufacturing firm can claim the deduction based on 9% of its “qualified production activities income” (QPAI). QPAI is generally equal to domestic production gross receipts, minus the sum of:

  1. The costs of goods sold that are allocable to the domestic production gross receipts
  2. Deductions, expenses or losses directly allocable to the domestic production gross receipts
  3. Certain other deductions, expenses and losses that are indirectly allocable to domestic production gross receipts.

For this purpose, domestic production gross receipts include gross receipts derived...(register to read more)

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