You may not think of yourself as a manufacturer, but you might nevertheless qualify as one under tax law.
There is a deduction for manufacturing that applies to a much broader array of activities than you would think. There’s no catch and no recapture associated with this deduction—it’s just extra cash for your wallet.
The deduction, in general, is for people who convert starting materials into a new finished product in their business, and if you think about it, that covers a tremendously broad array of activities, including these:
- Certain dental procedures
- Writing computer software
- Creating music recordings
- Producing crafts and other goods
- Raising livestock
The deduction can be substantial—up to 9 percent of all income from qualifying activities.
Here are the basic steps to calculate the deduction:
- Determine your income from qualifying production activities.
- Deduct the costs attributable to the production activity, including the cost of goods sold and an allocable share of other business expenses.
- Multiply the result (or, if less, your taxable income) by 9 percent. That’s your tentative deduction.
The deduction is “tentative” only because you have to factor in a wage limitation: your deduction cannot exceed 50 percent of the amount your business pays as W-2 wages for work attributable to the qualifying activity.
As I said earlier, there’s no catch, no drawback, and no recapture provision associated with the deduction. If you have qualifying activities, it’s just extra money for you to put in your pockets.