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199 Deduction, Ever Hear of It?

199 Deduction

199 Deduction, Ever Hear of It?

If your business is in Manufacturing, Producing, Growing or Extracting you should have, because it can mean significant savings for your company year after year.

Maybe you were under the impression that to get this deduction it would take too much effort and everyone knows how busy an entrepreneur is at the beginning of a new year. But, a seasoned tax professional can make easy work of such a task. Why not sit back, relax and put it in the hands of someone who knows how?

What is a 199 Deduction?

Otherwise known as the Domestic Production Activity Deduction, enacted in 2005, was put into effect to help businesses that hire employees within the United States, rather than outsource overseas, to produce goods.

  1. The domestic production activities deduction is typically calculated as a percentage of a taxpayer’s qualified production activities income (QPAI). QPAI is defined as domestic production gross receipts (DPGR) for a tax year less cost of goods sold and other expenses, losses, or deductions allocable or properly attributable to those receipts.
  2. DPGR are receipts from the lease, rental, license, sale, exchange, or other disposition of qualifying production property (QPP) and certain other property. QPP is property produced by manufacturing, producing, growing, or extracting activities performed in whole or in significant part within the United States, including tangible personal property, any computer software, and sound recordings.
  3. The amount of the deduction is limited to 50% of the taxpayer’s W-2 wages attributable to DPGR.

For a detailed explanation, you can read this article from The Tax Advisor Magazine.

Who is Eligible for a 199 Deduction?

Examples of who is eligible for a 199 deduction would be those that engage in:

  1. the manufacture, production, or growth of tangible personal property, in whole or in significant part within the U.S.
  2. the construction of real property in the U.S.
  3. the performance of engineering or architectural services in the U.S. in connection with real property construction projects in the U.S.

Almost any activity relating to manufacturing, producing, growing, extracting, installing, developing, improving, or creating tangible personal property qualifies for the deduction. As you can probably guess, many businesses are entitled to this little-known deduction.

How the 199 Deduction Benefits You

The 199 allowance is commonly 9% of the income earned from your domestic production activities. However, it cannot exceed 50% of the total W-2 wages paid to the employees who produced the goods.

Unlike many other beneficial deductions (such as the section 179 Expense and Bonus Depreciation Deduction, which allows recognition of a significant amount of the cost of capital assets in the first year), section 199 is a yearly permanent deduction, not a one-time receipt.

For example, The 179 deduction accelerates the recognition of depreciation, but at the end of the asset’s life, you will recognize the same deduction whether you took the 179 deductions or not. Not so with the 199 deduction, it is not an acceleration of deductions, but rather a permanent reduction in income, regardless of the time-period.

Contact the CPA’s at Glave Business Solutions to find out if your business qualifies for this deduction this year. While calculating the 199 may be a little complicated for a layman, requiring several tests, calculations, and documentation, we have it well in hand for you. Let us do for you, what we do best… allowing you to continue with your excellent work, worry free, and some extra cash in hand.

 

Sources:

http://www.thetaxadviser.com/issues/2010/may/sec199.html

https://www.nolo.com/legal-encyclopedia/the-domestic-production-activity-deduction-find-out-your-small-business-qualifies.html

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