New Domestic Prods. Activities Deduction

[Unregistered]

I have a client running 2 S-Corps. One does prep work for underground untilites, etc.

The other does electrical work for mostly commercial buildings.

Do either of these actvities qualify? I read somewhere that this type of work may not be included in the deduction.

I am throughly confused.

[Matt Sova]

electrical work

I would say the electrical work in new construction would qualify. Even so, I don't think the form is final yet for reporting this stuff, I think it read it will be final near the end of this month.

Matt

[OldJack]

Form 8903 is now available for download on the IRS website. I didn't see any instructions though its just the pdf form to print with no computer input.

[jainen]

These might not qualify

These might not qualify unless they are actual construction instead of support or maintenance work. You'll have to study the temporary regs and the specific facts and circumstances.

What exactly is prep work for underground utilities? Does this mean surveying, or clearing and hauling, or public relations, or trenching? The temporary regs discuss all these.

Electrical repair and maintenance is not production. Even in new construction, income related to the materials installed is not eligible for the deduction.

Of course the whole thing is limited by W-2 wages, which is often a sticky point with S-corps. It's not very generous either. For every $10,000 of wages paid, the deduction is 3% of $5000, or $150. For someone in the 28% tax bracket, that's only $42 tax benefit. You'll charge more than that to do the form.

[Matt Sova]

UltraTax User Bulletin dated 2/3/06

The following is from my tax software and an update has not come through yet so I assume the IRS has NOT finalized the form and instructions yet.

Matt

Form 8903, Domestic Production Activities Deduction
With this release, C Corporation calculations for Form 8903, Domestic Production Activities Deduction have been updated to follow all current Internal Revenue Service guidance received to date. This includes S Corporation returns that have a built-in gains tax, a passive income tax, or a recalculation of income as a C Corporation for state purposes. Please note, however, that the final Form 8903 and its instructions have not yet been released or approved. The IRS has indicated that the final release of Form 8903 is scheduled for later this month. When the final form and instructions are released, UltraTax/1120-US will be updated as necessary to reflect form approval and any calculation changes.

[Unregistered]

Thanks for the replies.

This client does the electrical work and installations in new buildings and does electrical work in existing buildings. Mostly commercial. Not much residential.

He also does the work for the underground utilities that are to be installed. Such as getting the ditches dug and electrical "stuff" put in as they build a road or highway. But, he is not transmitting the electricity.

So, he is not actually the utility company. Which, if I read correctly, is not eligilble to take this deduction.

He does have a large payroll. But, I will do some preliminary checking to see if it would be worth all the trouble to figure the deduction for very little benefit