Can someone explain the basics of the Domestic Production Activities Deduction and how it would be calculated if the production activity is in an S-Corporation?
I don't find a Form 8903 for the S-Corporation return, so I don't see a way to make this deduction a pass through directly from the S-Corp. Is the intent for the shareholder's accountant to fill out the Form 8903 directly and simply claim the deduction against the S-Corporation's pass through net income?
If I am understanding this correctly, the deduction is for 3% of the reported net income of the S-Corporation in which the production activity occurs, not to exceed 50% of the W-2 wages of the corporation?
While it is not much of a deduction, the one attractive thing about this
8903 deduction is that it affects Adjusted Gross Income directly and doesn't seem to be backed out on the AMT calculation (Form 6251). To contrast, the R&D tax credit is something of a farce since they simply adjust that credit by the amount owed under AMT rules, and effectively you get to take very little of the R&D credit unless you have a very large net income.nish