Domestic Production Activities Deduction

A taxpayer may qualify for a tax deduction for something called a Domestic Production Activities Deduction.  The deduction is a percentage of the qualified domestic production activities income of the business.   The percentage is 6% for 2007 through 2009, and 9% thereafter)

The deduction is calculated at the corporate level (on the company tax return), and in the case of an S corporation or LLC, the deduction is passed on to the shareholder, to take the deduction on the shareholder’s personal tax return.

To qualify (in general), taxpayers must be in the business of manufacturing, production, or growing of qualified production property in whole or in significant part.   Construction, engineering and architectural services can also qualify.   The rules and definitions are quite detailed, and your situation needs to be analyzed closely to determine if you and your business would qualify.

Thus, this deduction should be considered by you if your business involves manufacturing, production, construction, engineering, architecture activities.