What is the Domestic Production Activities Deduction?
During Hillsdale College’s Spring Vacation, I read no newspapers. So, yesterday, I took out a little time to go through the issues of The Wall Street Journal that had accumulated in my absence. And there I found an article suggesting things to avoid in doing one’s taxes and things to take advantage of.
Among the latter was the “domestic production activities deduction” – which I had never heard of. So I looked it up in the source of all wisdom : Taxes 2009 for Dummies – where I was told that, since 2005, it has been “available to taxpayers who produce, and then sell, lease, license, exchange , or otherwise dispose of any product (including manufactured, agricultural, mineral, engineered, cultural, or intellectual) either wholly or significantly in the United States.” And this fount of wisdom tells me that film producers and directors and writers are included and that the deduction in 2010 is 9%.
I need advice. Have I missed out on this deduction? I write for publication, and sometimes I get paid. I write lectures, deliver them, and sometimes get paid. I am off to Manhattan, Kansas today to give a series of talks tomorrow at Kansas State University; I will be off late next week to Minneapolis to speak to the National Association of Scholars there and to give a paper at the University of Minnesota. I list this income on Schedule C and have done so for years.
My bet is that Rob Long and many others associated with Ricochet do the like. Can I take the Domestic Production Activities Deduction?
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Comments :
Feb '11
Re: What is the Domestic Production Activities Deduction?
I found a fairly detailed description of this deduction <a href="http://taxes.about.com/od/deductionscredits/a/domesticproduct.htm">here</a>.
Feb '11
Re: What is the Domestic Production Activities Deduction?
(sigh)...link for domestic production credit
Re: What is the Domestic Production Activities Deduction?
It says "dispose of" so maybe you don't have to be paid for your product.
Does that mean I can take a deduction for writing Ricochet posts?
Re: What is the Domestic Production Activities Deduction?
I looked at the language of the statute.
I don't think it applies to all intellectual property. Film is covered by its own section.
You can take the deduction if you are producing "tangible personal property" but the statute doesn't define what that is.
It would seem that your online work or spoken work doesn't apply as tangible. Perhaps printed words do, because the the individual publication (magazine) is personal property. But the deduction is limited by wages you pay, which suggests to me that you have to have employees involved in your production of the product. Perhaps the magazine has the deduction, but not the writer.
IMPORTANT NOTE: I'm not a tax lawyer, so do not rely upon what I write here as professional advice. It isn't. On tax issues I'm just a layperson squawking on the interwebs!
Feb '11
Re: What is the Domestic Production Activities Deduction?
It may apply but you definitely need to speak to a tax accountant that has expirience in this field. Based on the activities you described, your current practice of reporting the income on Schedule C sounds correct. There are various ways to account for the many expenses related to your work (traveling, lodging, etc.) that can help offset the taxable income. The key is to maintain detailed records, inevitably this is the most difficult part of running a Schedule C business. As a former tax auditor I saw first hand how people claimed deductions that appeared resonable yet they failed to keep the records necessary to substantiate the deduction. Hence, I was forced to disallow the deductions and assess them an additional tax bill. Here is a link to WSJ story that helps illustrate how the tax laws if harnessed properly can be a benefit: http://online.wsj.com/article/SB10001424052748703696704576222590253291266.html?mod=WSJ_hp_mostpop_emailed
Re: What is the Domestic Production Activities Deduction?
Thanks. I am, in fact, an extremely diligent keeper of records. Schedule C I understand pretty well. I have been using it for something like twenty years. The Domestic Production Deduction is, however, a new wrinkle.
Re: What is the Domestic Production Activities Deduction?
Thanks for this. On the face of it, I ought to qualify. But one never knows....