What’s new for business taxpayers getting ready to file their 2005 taxpayers? According to Chet Burgess, an enrolled agent and owner of Brookwood Tax Service in Atlanta, Georgia, the big news is there are deductions for U.S. production activities.

“The deduction is available for a wide range of business activities, including manufacturing of any tangible personal property, construction, installation of various equipment and products, computer software and video and sound recordings,” Burgess explains.

“Many business activities may qualify for the new deduction, which is calculated as 3 percent of the net profit from qualifying business activities. There are a number of requirements and limits to the deduction, including that the business must have a profit and pay W-2 wages to claim the deduction, which is limited to 50 percent of wages paid,” he added.

As an example, a business with $100,000 of net profit from qualifying production activities can claim an additional deduction of $3,000 in 2005. The deduction is available for all forms of business entities, including sole proprietors, corporations, partnerships and LLC’s.

Calculation of the production deduction can be very complicated, so this is one that business owners should pass off to a qualified tax professional. Calculating the deduction may require separating revenues and costs for qualifying business operations from activities that do not qualify for the deduction.

Chet Burgess, EA
Brookwood Tax Service, LLC
4 Montclair Dr., NE
Atlanta, GA 30309-1527

Published: Dec 27, 2005