When we reviewed many of our new clients' tax returns we noticed a disturbing trend: they were giving money away! If you are a sole proprietor or a S-Corp, LLC or Partnership, make sure you're not missing out on the section 199 deduction. Here's how.
The "gross domestic production activities deduction" (or Section 199, as it is commonly called) has been around since 2004, allowing a deduction of a percentage of qualifying production expenses. It is easy to qualify for, since “production” is defined broadly and it requires only that it take place “in significant part” within the United States. Basically Section 199 is a tax break for businesses to encourage and reward domestic manufacturing.
The domestic production activities deduction is available to a wide variety of U.S. taxpayers, not just those who export their products. To be eligible for the Sec. 199 deduction, taxpayers must have:
DPGR may also be derived from construction of real property or engineering/architectural services in the ordinary course of business in the United States by taxpayers that actively conduct a trade or business of construction or engineering/architectural services, respectively.
Section 199 deduction is a significant deduction, too: it started out as 3% of the QPAI (Qualified Production Activities Income), was increased to 6% for tax years 2007-2009, and as of 2010 it stands at a healthy 9%. Think of all the money you could be saving!
There is a limit, of course: Section 199 deduction is limited to 50% of the taxpayer’s W-2 wages which can be attributed to domestic production gross receipts.
One last bit of good news? You can file retroactively for the past 3 years!
For more information or to see if you qualify for this deduction please give our office a call.