Taxation3 - Chapter 3(Corporations Special Situation Tuesday 4:41 PM Not limited to corporations Domestic Production Activities Deduction(DPAD More

Taxation3 - Chapter 3(Corporations Special Situation...

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More likely to apply to C and S corporationsDomestic Production Activities Deduction (DPAD)Fewer corporation subject to AMT than to DPAD due to exemption for small corporations AMTNot limited to corporationsRelates only to certain corporations and is not required of other taxpayersAdjusted current earnings (ACE)Imposed on closely held corporation that accumulate profits to avoid dividend distributions Penalty taxes of SS531 and 541 are unique to C corporations Manufacturing Film productionConstructionPrint media EngineeringPower generationSpecial deduction that is available for organizations with domestic production activities, including those in Income tax burden by 3%DPAD rate is 9%No W-2 wages paid, no deduction Purpose is to preserve jobs in U.SCan't exceed 50% of W-2 wages paid by taxpayer during tax yearIndividualsPartnershipsS corporationCooperativesEstatesTrustDAPD deduction available to Deduction flow through to individual ownersFor pass-through entityDeduction for AGI results and is claimed on form 1040 line 35Form 8903 must be attached to support deduction Sole proprietorDPAD is a deduction based on net income earned form specified sourceOverall tax effect is similar to that of a rate reduction or tax creditFASB require benefit to be reported as special charge DPAD added back to taxable income in determining corporate earnings and profits3-1a (Components of the Deduction) 3-1 (Domestic Production Activities Deduction)Chapter 3 (Corporations: Special Situation)Tuesday, September 13, 20164:41 PMTaxation Page 1
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For individual, modified AGI is substituted for taxable income Taxable income determined without regards to DPADNo DAPD if NOL carryforward eliminate taxable incomeCan lose part of all of DPAD benefit if there is NOL carryback for that yearTaxable income limitation determined after application of NOL deduct for tax yearLost forever Excess of domestic production gross receipts over sum of COGS and other deduction and ratable portion of deduction not directly allocable to such receiptsQualified production activity income (QPAI) not used in year due to taxable income limitationFurther limited by 50% of W-2 wages paid by taxpayer that are allocable to domestic production gross receipts Employer multiplies W-2 wages by ratio of wage expenses used to determine QPAI to total wage expense used to determine taxable income for tax yearWage charged against DPGR in same proportion that DPGR bears to total gross receipts Small business simplified overall methodWage-expense method2 safe harbor for calculating W-2 wage amount:If taxable income and W-2 wages limitation are not applicable, DPAD is % of qualified production activity income.
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