Production Deduction Form 8903

[Gretel]

I'm not following. My initial, very quick reading of that link seems to say that the deduction is still allowed in spite of imperfections in the inventory treatment, and if there are things that need to be fixed, it's the inventory accounting and not the DAPD that gets fixed.

Why would that lead to a conclusion that the little man is left out? Or were you just combining that link with the observation that DAPD is limited by salaries paid, and "the little man" often has no employees.

I am referring to the burdensome effort of setting up inventory accounting according to Sec. 263A. The client I have in mind has plenty employees and wages. However, he likes to keep things simple and inventory is only accounted for at year end. Sales are well over 1 Million, at least 90% manufacturing, 10% resale. I cannot see that the bottom line of this deduction would be worthwhile the additional effort and costs of inventory accounting. Maybe I am missing something. I am not real familiar with manufacturing.

[Gary2]

http://mcgladrey.com/Tax-Services/Im...ze-Section-199

In case anyone else struggles with this issue I posted link above. Seems like the little man is left out of this deduction.

I'm not following. My initial, very quick reading of that link seems to say that the deduction is still allowed in spite of imperfections in the inventory treatment, and if there are things that need to be fixed, it's the inventory accounting and not the DAPD that gets fixed.

Why would that lead to a conclusion that the little man is left out? Or were you just combining that link with the observation that DAPD is limited by salaries paid, and "the little man" often has no employees.

[Gretel]

Link

http://mcgladrey.com/Tax-Services/Improper-Application-of-Section-263A-does-not-impair-a-Taxpayers-Ability-to-Utilize-Section-199

In case anyone else struggles with this issue I posted link above. Seems like the little man is left out of this deduction.

[Gretel]

Thanks Lion and Gary. I cannot find my answer in the instructions and had looked at it before posting. I am thinking the expenses follow the same rule as have to be followed for capitalization but I cannot find anything specific on this point.

[Gary2]

Forgive me if this part is obvious and/or unhelpful, but wouldn't it be the same as indirect expenses that must be capitalized as part of COGS? Things like utilities and insurance that apply to the manufacturing area?

I've never had a need to go beyond the textbook examples of such expenses, so I don't know where to go to get more specifics.

[Lion]

http://www.irs.gov/pub/irs-pdf/i8903.pdf

[Gretel]

I tried to find information on the definition of "Indirect Expenses" for purpose of this deduction. But I could not, TTB does not even mention this deduction. Can someone point me in the right direction?