No more domestic production activities deduction?

Your Guide to State, Local, Federal, Estate + International Taxation

domestic production activities deduction, tax reform, businessBy now you’ve heard so much about the Tax Cuts & Jobs Act (TCJA) of 2017 and probably don’t want to read a word more, BUT you should since it directly affects you personally as well as your business. Luckily, you have us here at Henry+Horne to help extinguish the headaches and uncertainties by keeping you updated on all the changes and helping you take advantage of the new law and the new deductions therein.

Speaking of deductions, there is one that changed with the passing of the new law, namely the Section 199 deduction. This deduction, called the Domestic Production Activities Deduction (DPAD), passed in 2004 for the benefit of companies who manufactured goods inside the United States. Qualifying companies were able to take a deduction based on a complex formula. With the passing of the TCJA, this deduction is no longer available for 2018.

In its place, the government came up with the Section 199A deduction (note the “A”), aka Qualified Business Income Deduction. This deduction no longer only applies to domestic manufacturing companies but it grants a 20% deduction to the owners of a pass-through entity (Sole Proprietorship, S Corporation and Partnership) that is not considered a “Specified Service Trade or Business.” Again, just like the Section 199 Domestic Production Activities Deduction, the ability and extent a company is able to take advantage of this deduction depends on a complex formula and set of rules.

For a more in-depth explanation on the calculation of the Section 199A Qualified Business Income Deduction, check out parts one, two and three of this blog series from Henry+Horne.

Michael Willett