# 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