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Gear up for big manufacturing deductions

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in Small Business Tax,Small Business Tax Deduction Strategies

The so-called “manufacturing deduction” isn’t limited to companies that manufacture products only in the traditional sense. It’s available to a wider range of business operations.

Strategy: See whether your company can squeeze through one of the loopholes. If you qualify, you are eligible to deduct up to 6% of your qualified production activity income (QPAI) for the year.

Even better, the maximum deduction increases to 9% of QPAI in 2010. If your company is in the 35% tax bracket, this amounts to a 3.15% tax rate cut!

Here’s the whole story: Under Sec. 199 of the tax code, a qualified domestic producer can currently deduct 6% of the lesser of its QPAI or its taxable income. The maximum deduction was initially doubled from 3% after 2006.

QPAI is equal to domestic production gross receipts (DPGR) from qualified activities (see box) minus expenses. Expenses include the cost of goods sold allocable to the receipts, ...(register to read more)

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