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U.S. Manufacturers Should All Be Receiving This Tax Deduction

Posted by Nancy Kahn on Wed, Jun 29, 2016

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U.S. Manufacturers Should All Be Receiving This Tax DeductionMade in the U.S.A. is a great mantra, and for many manufacturers it’s an easy one – it makes sense to have your main facility stateside.

Well, did you know you can get a tax deduction just for producing products in the United States? The Domestic Production Activities Deduction allows businesses to take deductions on the production of property you manufacture, produce, grow or extract in whole or in significant part in the United States.

Important Update: The Tax Cuts and Jobs Act eliminated DPAD. Please check out this page for news on Tax Reform changes or contact us at info@concannonmiller.com with questions.

This business deduction – DPAD for short – was created as part of the American Jobs Creation Act of 2004.

The deduction started at 3 percent of the net income from eligible activities in 2005, and was increased to 6 percent in 2007 and since 2009 the deduction has stood at 9 percent.

That 9 percent, however, cannot be more than 50 percent of W-2 wages. A typical example is on $100,000 of qualified net income, your company could get a $9,000 deduction.

READ MORE: Tax Tips for Manufacturers Seeking Increased Cash Flow

Tax Credit & Incentives Discovery ReportSo what kinds of activities are eligible for DPAD? The American Jobs Creation Act defines domestic production activities fairly broadly, including mining, oil extraction, farming, construction, architecture, engineering and the production of software, recordings and films.

Businesses can even take the deduction for products only partially produced in the United States.  Included in the regulations is a safe harbor that states if the activities performed in the U.S. account for 20 percent of the total costs, the companies may be eligible for the deduction.

DPAD also is available to a wide variety of business types:  both the regular tax and the alternative minimum tax for individuals, C corporations, farming cooperatives, and estates, trusts and their beneficiaries. The deduction is even permitted for partners and owners of S corporations, though not directly to partnerships or the S corporations themselves.

Is your company not taking advantage of the DPAD deduction? Contact us at info@concannonmiller.com or 888-433-1515 to see how much you would benefit from this and other tax strategies specifically for manufacturers.

READ MORE: Manufacturing Tax Tips

Topics: Manufacturing

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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