Section 199 Manufacturing Deduction

If your business didn’t meet the requirements in the past to claim a manufacturing deduction or you determined that it wasn’t worth the time, maybe you should reconsider it. One of the most compelling reasons is because the 9% deduction is now three time the original rate of 3%.

That percentage is applied to Qualified Production Activity Income or taxable income, whichever is less and limited to 50% of related W-2 wages. The qualifying production activities, in general, must also be performed in the U.S.

The following lines of business may qualify:

  • Construction services, including related engineering and architectural services
  • Manufacture, production, growth or extraction of tangible personal property, computer software or sound recordings or qualified films
  • Production of electricity, natural gas or potable water

The calculation requires allocation of gross receipts between qualified and non-qualified production activities. Then an allocation of expenses must be made. In some circumstances, the taxpayer may qualify for the Simplified Deduction Method or the Small Business Simplified Method.

If you think you may qualify, please contact us for an in depth analysis.

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