Will Form 1120 C Manufacturing 2023-2024

Hello and welcome to this session. This is Professor Farhad. In this session, we will look at two additional deductions. One of them is called the domestic production activities deduction, formally known as the manufacturer deduction. This deduction is granted to manufacturers to stimulate investment and manufacturing jobs. The American Job Creation Act of 2004 created this deduction based on income from manufacturing activities. The domestic production activities deduction is calculated using the following formula: 9% times the lesser of the qualified production activities income or taxable or adjusted income. However, this deduction cannot exceed 50% of the employer's W-2 wages related to the qualified production activities income. If we have any unused domestic production activities deduction, there is no carryover. It cannot be used in future years. This applies to both corporations and individuals, and they can only go back two years to get the deduction back. Unlike individuals, corporations cannot adjust their losses for capital losses. They also cannot make adjustments for non-business deductions, as corporations only deal with business deductions. However, corporations are allowed to include the dividends received deduction (DRD) when computing their net operating loss (NOL). Let's take a look at a couple of examples from the textbook to illustrate these concepts. Elf Corporation, a calendar year taxpayer that manufactures golf equipment, had a taxable income of $360 before considering the domestic production activities deduction and qualified production activities. Their deduction is 9% of the lower of these two, which is $32,400, below the limit of 50% of the W-2 wages. Another example is Green Corporation, which had a gross income of $200,000 including dividends and deductions of $300,000, excluding the dividends received deduction. They received a $100,000 dividend from Fox Inc, in which they hold a 5% stock interest. After computing their deductions and income, they have a taxable...