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Sarah Ham, operating as a sole proprietor, manufactures printers in the United States. For 2015,...

Question:

Sarah Ham, operating as a sole proprietor, manufactures printers in the United States. For 2015, the proprietorship has QPAI of $400,000. Sarah's modified AGI was $350,000. The W-2 wages paid by the proprietorship to employees engaged in the qualified domestic production activity were $60,000.

Sarah's domestic production activities deduction (DPAD) for the year 2015 is $..........

Domestic Production Activities Deduction:

This arrangement was passed in 2004 by the Congress which focuses to give some tax relief for those manufacturers who manufacture their products within the national boundary rather than overseas.

Answer and Explanation:

Solution:

DP AD would be lesser of fa) and fb)

(a) 9% of OPAI
= 9% of $400,000 $36,000
(b) 9% of Taxable Income
= 9% of $350,000 $31,500

Therefore DP AD = $31,500

But this is limited to 50% of W-2 Wages

(i.e) 50% of $60,000 = $30,000

Hence. DPAD = $30,000

Sarah's Domestic Production activities deduction (DPAD)

for the year 2015 is $30,000


Learn more about this topic:

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Gross Domestic Product: Items Excluded from National Production

from Economics 102: Macroeconomics

Chapter 4 / Lesson 4
297K

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