Made 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.
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.
So 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 email@example.com or 888-433-1515 to see how much you would benefit from this and other tax strategies specifically for manufacturers.