New Domestic Activities Production
Deduction
Many U.S. Business
Can Qualify for This New Write-Off
What's new for business taxpayers
getting ready to file their 2005 taxpayers? There is a new deduction
for U.S. production activities.
The deduction is available for a wide range of business activities,
including manufacturing of any tangible personal property, computer
software and video and sound recordings, building construction and
installation of various equipment and products.
Many business activities may qualify for the new deduction, which is
calculated as 3 percent of the net profit from qualifying business
activities. There are a number of requirements and limits to the
deduction, including that the business must have a profit and pay W-2
wages to claim the deduction, which is limited to 50 percent of wages
paid.
If a business has revenues from sale of manufactured products that qualify
for the domestic activities production
deduction and revenues from other activities, the business must separate
the revenues and related expenses for the qualifying domestic production
activity to calculate the net profit amount that qualifies for calculating
the deduction.
As an example, a business with $100,000 of net profit from qualifying
production activities can claim an additional deduction of $3,000 in 2005.
The deduction is available for all forms of business entities, including
sole proprietors, corporations, partnerships and LLC's.
Calculation of the production deduction can be very complicated, so this
is one that business owners probably should pass off to a qualified tax
professional. Calculating the deduction may require separating revenues
and costs for qualifying business operations from activities that do not
qualify for the deduction.
