Section 199 Deduction

Domestic manufacturers can take advantage of the Section 199 deduction. In 2017, qualified businesses may deduct 9% of the lesser of their qualified production activities income (QPAI) or their taxable income. Qualified activities include the production of certain types of film and video, computer software, and energy, as well as certain agricultural processing, construction, engineering, and architectural activities.

Taxpayers may allocate only 50% of wages to domestic production gross receipts (DPGRs), which are used to calculate QPAI. Business owners must track the portion of an employee’s time and pay related to qualifying activities.