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What is DPAD?
The Domestic Production Activities Deduction (DPAD) also called the “domestic manufacturing deduction” or “U.S. production activities deduction.” DPAD was passed into law as part of the American Jobs Creation Act of 2004 (PL 108-357) effective for tax years beginning after 2004.
Who Qualifies?
All businesses engaged in domestic manufacturing and production activities qualify for IRC § 199 Domestic Production Activities Deduction benefit. Traditional manufacturers qualify but the rules have broadened the traditional definition of manufacturing to also include companies such as Qualifying production property which was manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States, Construction firms for construction performed in the United States, Engineering and architectural firms for services performed in the United States for construction projects in the United States, and Electricity, natural gas, and potable water producers for U.S. production. Profitable companies participating in these industries may be entitled to the generous tax and cash benefits provided by this incentive.
Benefits?
Each business, big or small, in the manufacturing sector should consider the DPAD. Although complex, it still represents a valuable tax break. Management should always weigh the potential DPAD benefit versus the cost of calculating and supporting it. DPAD is fully phased in at 9% of income from qualified production activities for tax years beginning in 2010. Therefore, more businesses will find that DPAD now outweighs the cost.
How Do I See My Benefits?