"Domestic Production Activities Deduction"

[Aviator]

After receiving the email notification about an update (nice feature BTW), I went to the link provided regarding the year 2005 Form 1040 instruction booklet.

I noticed there is a new addition on line 35 of the Form 1040 entitled "Domestic Production Activities Deduction" and referenced Form 8903 for use with that line item.

At the moment at least there does not appear to be any instructions published by the IRS for preparing the Form 8903.

First, what is "Domestic Production Activities Deduction" and under what circumstances would one be likely to encounter its use? Is there a IRS cite available to review?

I try to keep up to date on changes and new features that are published each year but I sure missed that one.

Aviator

[ecb34691]

Domestic Production

I found a draft of Form 8903 on the IRS site. Only other thing I found on their site was "A Brief Overview of the New Domestic Production Activities Deduction" under Headliner Volume 137 dated 11/3/2005.

[Aviator]

"Domestic Production Activities Deduction"

Thanks ecb34691 for your quick response. I took your advice and went to the IRS website and read that Headliner Volume 137 you recommended. While I did look for information about this new deduction I forgot all about "The American Jobs Creation Act of 2004" which addressed this topic. I also read the new IRS Section 199 referenced in that IRS announcement.

Don't know whether or not other contributers to this board will offer input but I do appreciate your comments.

Aviator

[Bird Legs]

Domestic Production Activities Deduction

Aviator, try going to Google for search: type in Domestic Production Activities Deduction
and see what pops up.

[Brad Imsdahl]

TheTaxBook, Tab 8, Business Deductions, will have an example of a Schedule C home construction contractor with 2 employees, and how he calculates the deduction that is entered on line 35 of Form 1040.

The rules seem complicated. IRS Notice 2005-14 is 102 pages of explanation, and the IRS just came out with proposed regulations on the subject.

However, buried deep within the regs, we found a simplified procedure for taxpayers under $5 million average annual gross receipts. I think you will find our example in the book helpful in trying to figure out what to do with it.

I know I have at least two clients, both home construction contractors, that can use the deduction.

[taxmandan]

Rules

The rules seem complicated.

I believe that's mandated by the IRS mission statement: "Keep 'em guessing and keep it complicated."