December 2017

2017 Book List

By Warren Shoen

 

Term of the Month

By Ny Lee

Section 199 Deduction

Section 199 Deduction refers to that particular section in the Internal Revenue Code that details the Domestic Production Activities Deduction (“DPAD”), which was created as part of the “American Jobs Creation Act of 2004.” The provision was created to encourage domestic manufacturing by providing a tax deduction on income derived from qualifying domestic production activities that relates to the following:
• The manufacture, production, growth, or extraction of any tangible personal property, including computer software and sound recordings. Exclusions include land and buildings.
• The production of qualified film.
• The production (not transmission) of electricity, natural gas, or water.
• Construction of real property.
• Architecture and engineering services.

The deduction is calculated as follows:
DPGR (Domestic Production Gross Receipts)
(-) COGS and other expenses directly allocable to the production of DPGR
(=) QPAI (Qualifying Production Activities Income)
(x) 9%
(=) DPAD (Domestic Production Activities Deduction)

The deduction (DPAD) is equal to 9% of the lesser of i) the qualifying income (QPAI) or ii) taxable income. The deduction is further limited to 50% of the manufacturer’s domestic production W-2 wages. Moreover, the deduction provision does not allow for the creation or increase of any net operating losses (NOL).

Aside from the above general qualifications and limitations, the provision also has special rules for the agriculture industry as it relates specifically to cooperatives. Under the provision, cooperatives are treated as having manufactured, produced, grown, or extracted any agricultural or horticultural products as its members. As such, cooperatives are allowed to pass through all or part of their deduction (DPAD) to their members. Members may then take the deduction without regard to the taxable income limitation; the 50% W-2 wage limitation, however, still applies and is typically the lowest for cooperative members.

Sources: KPMG, BakerTilly, Greenwaltcpas

 

Bits & Pieces

By Jeff Torrison

  • December is the top month for conception in the US while August is the lowest.
  • Global tea consumption totaled 1.7 trillion cups in 2016 compared to 984 billion cups of coffee according to Euromonitor. China, India, and Great Britain are among the countries with significant tea consumption.
  • There were approximately 24,000 troops killed or wounded during the two-day Battle of Shiloh in Tennessee in 1862 during the US Civil War. That was more than the total American casualties in the Revolutionary War, War of 1812, and Mexican War combined.
  • Singer Otis Redding died in a plane crash in Wisconsin in December of 1967 at the age of 26. Four months later his recording of “Sittin’ on the Dock of the Bay” reached the #1 spot on the pop charts.
  • The Hallmark Channel is airing 21 new, original Christmas movies in 2017.
  • Prohibition ended in December of 1933 following Utah’s ratification of the 21st amendment (just in time for New Year’s Eve).