Question on Section 199

[Aviator]

Upon review of the example of "Domestic Production Activities Deduction" (DPAD) presented on pp 8-18 & 8-19 I am left with this question. Assuming a building contractor (Schedule "C") pays *all* labor costs through independent contractor methods, (which as everyone knows is a common occurrence in that industry) does he not get the same treatment for expenses used to determine his DPAD as he would had he had W-2 employees rather than independent contractors? It would seem that payments made to independent contractors would simply replace the W-2 employee and the same 50% limitation in the computations for W-2 " wages" would apply. I would sure appreciate a second opinion.

Thanks

Aviator

[jainen]

Regardless

Regardless of what may be common in the industry, this credit is limited by W-2 wages. If your client wants the credit he must plan around that fact. Builders already have a huge exception here, in that they do not have to own the property they are constructing.

Like everything else in the tax code, another way might be nicer or more fair or any adjective you want, but we're stuck with what Congress says in all its lobbyist glory.

[Aviator]

Question on Section 199

Thanks Jainen for your response. I guess I was trying to look at the issue in a way that would "seem" fairer, but you're right, a credit is earned based on what the tax code specifies, not necessarily on how people like me interpret. Thanks again.

Aviator

[Matt Sova]

S-Corp

Have him switch to an S-Corp and take out a wage. Or, he could hire his spouse.

Matt

[Aviator]

Question on Section 199

Thanks Matt. Another strategy that should be explored. I'll see how that "plays out".

Aviator