A. Harold Davis, CPA

TaxTips

Continuously looking for ideas to save your tax dollars

Keeping our Client's abreast of new tax laws and providing them with possible ideas on ways to reduce their tax burden is one of our goals. We offer this through this continual update of new tax laws and providing some TAX TIPS which may offer savings ideas. We present these ideas; however, please consider all facts in your case, and talk with your tax representative, before implementing any of these these ideas.

Deduction for Domestic Production Activities

The American Jobs Creation Act of 2004 (AJCA) provides a new tax deduction for a percentage of business income earned from manufacturing and certain other production activities occurring in the United States. The deduction is available to regular C corporations, S corporations, partnerships, sole proprietorships, cooperatives, and estates and trusts. The deductions equals a percentage (3% for 2005 and 2006) of the lesser of :

The qualified production activities income of the taxpayer for the tax year, or
Taxable income determined without regard to the new deduction

the deduction is also limited to 50% of the wages paid by the taxpayer during the calendar year that ends in the tax year. The deduction is not allowed for gross receipts from the sale of food or beverages at a retail establishment, or the transmission or distribution of electricity, natural gas, or potable water.

Obviously, this deduction is a very complex. For more details, and guidance about this new deduction and its effect on your business, contact our office.