Domestic Production S Corp

[lsowers]

I have my first client where I have to worry about the domestic production activities deduction. It is an S Corp whose activity is engineering with 1 shareholder. Looking at last year's return (not done by me), they provided the DPGR and W2 wages on Sch K and K-1. The instructions make me think that more should be provided to the shareholder (he self-prepares his personal). Am I supposed to provide the deductions directly allocable to DPGR? If so, since all of the S corp's receipts are from engineering, would the deductions include all of them (no pro-rata)? Do the W2 wages include the secretary or just the engineer?

If anyone could help with this I would appreciation it. I have been trying to study this on my own, but I don't think the instructions for S Corps are too clear on this matter.

Thanks,

Lori

[kcjenkins]

Yes, you include the secretary's wages too.

[OldJack]

The real question here: Is there really an activity that qualifies for the domestic production activities deduction?

[lsowers]

He is a civil engineer

[OldJack]

>>He is a civil engineer <<

So what.. that does not mean he automatically has activities that qualify.

Read the requirements for a domestic production activities deduction real close.

[BulldogTom]

Amen to OldJack.

The real trick is to make sure all the activities are qualified activities. I personally do this for my day job, and it is a pain in the @$$. The CPA firm actually prepares the return, but I do all the work to segregate the qualified activities and the non-qualified activities. Then I allocate all the overhead and payroll accordingly. The math is pretty simple, and I have developed a spreadsheet to do it for me. It is the analysis of the activities and breaking out the revenues, payroll, direct and overhead costs associated with the activities that is a pain.

Tom

Lodi, CA

[lsowers]

All of the corp's income is derived from engineering services for real property construction projects in FL. I understand that much about the deduction.

I am asking for assistance in what gets reported on the K-1 to the shareholder. Since the S-Corp averages less than 5 million, do they qualify for the small business simplified overall method, which means I calculate the QPAI? There is other wording that makes me think I just pass through the DPGR, costs, and W2 wages since it is a closely-held S Corp.

The preparer last year only reported the DPGR and the engineer's wages (not the secretary's). I don't think that is correct, so I don't have a good example to follow.

If someone with experience with dealing with this deduction for a small, closely-held S Corp, I would appreciate some direction. I don't think my reference materials do a good job of explaining it for pass-through entities.

Thanks