SECTION 199 - PRODUCTION DEDUCTION
The 2005 federal tax return that we will soon be preparing for your business features a brand-new deduction for businesses that engage in U.S. manufacturing or other U.S. production activities.
This new deduction is available to all types of businesses, including sole proprietorships, partnerships, and corporations. What’s more, the deduction is not limited to traditional manufacturers and producers—it can be claimed by a wide variety of businesses, ranging from farmers to fishermen to filmmakers and from cabinetmakers to construction contractors.
For 2005, the maximum production deduction is 3 percent of your business’s net income from qualifying production activities. So, for example, if your business had $500,000 of qualifying income for 2005, you could be eligible for an extra $15,000 deduction when we file your 2005 tax return.
Our records indicate that your business may be eligible for the new deduction. However, as with most tax law provisions, there are special rules and limitations on the deduction. So it will be necessary to carefully examine your business operations to determine the extent to which your business qualifies for the new deduction.
And, of course, as with other tax law provisions, we’ll have to do some inevitable number-crunching. Moreover, in order to maximize the benefits of the new deduction, we may need some additional information over and above what we normally ask you for at tax return time. Therefore, we urge you to help us begin the process of preparing your 2005 return as soon as possible.
Please feel free to call our office for more information on the new production deduction or to schedule an initial appointment for preparation of your 2005 business return.