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Form 8903

Tax Year 2012

Domestic Production Activities Deduction
This worksheet is used to calculate the taxpayer's domestic production activities deduction (DPAD).

 

Eligibility for DPAD
The DPAD is a deduction available to taxpayers who have a business engaged in a qualified domestic production activity, including the following:

  • Construction of real property performed in the United States,
  • Engineering or architectural services performed in the United States, and
  • Any lease, rental license, sale, exchange or other disposition of any of the following:
    • Qualifying production property that is manufactured, produced, grown, or extracted in whole or in significant part in the United States,
    • Any qualified film produced, or
    • Electricity, natural gas, or potable water produced in the United States.

The following are not qualified domestic production activities:

  • Activities not attributable to a trade or business,
  • The sale of food or beverages prepared at a retail establishment,
  • The lease, rental, or license of property between certain persons treated as a single employer,
  • The lease, rental, or license or other disposition of land,
  • The transmission or distribution of electricity, natural gas, or potable water,
  • Advertising or product-placement (some exceptions apply), or
  • Customer and technical support, telephone and other telecommunications services, online services and other similar services (some exceptions apply).

Calculation of DPAD
The DPAD for 2012 is 9% of the smaller of the following:

  • The taxpayer's qualified production activities income (QPAI), or
  • The taxpayer's adjusted gross income (AGI) as calculated before the DPAD.

Additionally, the DPAD cannot be more than 50% of the Form W-2 wages the taxpayer paid to employees, including wages allocated to the taxpayer on Schedule K-1.

 

The rules for the DPAD are quite complex and are highly dependent on the taxpayer's industry. For more information and details on the DPAD rules and regulations, see the IRS Instructions for Form 8903.

Directions
Directions for entering information into the DPAD worksheet are as follows:
I. Income
Line 1 Enter the taxpayer's domestic production gross receipts (DPGR).

 

Include total sales minus returns and allowances, amounts received for services (not including wages as an employee), and income from incidental or outside sources.

 

Gross receipts must be appropriately allocated between DPGR and non-DPGR by a reasonable method.

II. Costs
Line 2 Allocable Costs of Goods Sold
Enter the allocable cost of goods sold (COGS) to the DPGR if the taxpayer is using the simplified deduction method or the Section 861 method.

 

Include the COGS to customers, wage expenses attributable to COGS, and the adjusted basis of non-inventory property sold or otherwise disposed of in the trade of business.

 

If the taxpayer is using the small business simplified overall method, leave this line blank.

 

See IRS Instructions for Form 8903 for more information and directions on the methods available.

Line 3 Directly Allocable Deductions, Expenses, or Losses
Enter the deductions, expenses, and/or losses allocable to the DPGR if the taxpayer is using the simplified deduction method or the Section 861 method.

 

If the taxpayer is using the small business simplified overall method, leave this line blank.

 

Do not include COGS or employee business expenses.

Line 4 Indirectly Allocable Deductions, Expenses, or Losses
Enter the indirectly allocable deductions, expenses, or losses.
III. Other Deductions
Line 14 Enter the total W-2 Wages paid from this business activity during the tax year.
Line 21 Enter the domestic production activities deduction from cooperatives.

 

This information is found in Box 6 of Form 1099-PATR.

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