Section 199, or the Domestic Production Activities Deduction, is often referred to as the “manufacturer’s deduction.” This is a bit misleading because the deduction is not simply for manufacturers. Any business with “qualified production activities” can take a 9% deduction against the income from production activities or taxable income, whichever is lesser. The deduction will remain available to traditional manufacturers, in addition to being available to businesses that produce a new product. Find out if your business qualifies for this deduction this year.
What are Some Qualified Production Activities?
- Producing Electricity
- Agricultural Processing
- Certain Engineering Services
- Developing Software
- Assembling Gift Baskets
- Packaging Meat
- Roasting Coffee
- Many Other Production Activities
Why is the definition of production activities so broad? According to U.S. District Court Judge James V. Selna, when he ruled in favor of a Gift Basket company: "[the taxpayer] creates a new product with a different demand." If a business creates a product, it likely qualifies for the manufacturer’s deduction.
The deduction is not permitted in determining net self-employment earnings. It also cannot reduce net income below zero. It may be used against the AMT. The deduction is not allowed for Minnesota tax purposes.
Contact one of our talented CPAs and financial advisors today if you think your business may qualify for the manufacturers' deduction. If you are producing a new product you may be able to save on this year's tax return. Our tax consultants can help you save money and find deductions you may not have known were available.