DPAD: A perk of U.S. domestic manufacturing, but make sure you qualify


If you're a domestic manufacturer in the United States, here some good news and some not-so-good news: The good news is that Congress enacted IRS Code Section 199 - The Domestic Production Activities Deduction (DPAD) - in 2004 as part of the American Jobs Creation Act. The current deduction is now 9% of qualified income, a significant tax deduction for companies with manufacturing based in the United States.

The not-so-good news, says Jeff Mengel, a consultant at accountancy and business consultant Plante & Moran LLC , and a person very familiar with the plastics industry, is that these deductions can be quite complex. As he commented in his company's recent Perspectives publication, "Many manufacturers think, 'I have taxable income of $5 million; therefore, my deduction is 9% of $5 million," writes Mengel. "It's not that simple. Instead, you have to calculate the qualified production activities' income and expenses for each business activity. Those are separated into qualifying and non-qualifying activities, and the 9% deduction is taken against the qualifying activities."...
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