French Larry Taylor explains 5 things you didn’t know about the Section 199 tax deduction
Tax specialist French Larry Taylor breaks down the basics of Section 199 for businesses engaged in domestic production.
DALLAS, TEXAS, December 4, 2021 — Federal tax specialist French Larry Taylor is an expert in the application of the Section 199 deduction.
For businesses filings for 2021, it may be too late to maximize the Section 199 deductions for the current year, but it’s the perfect time to plan ahead for the coming year.
French Larry Taylor defines the Section 199 deduction
While Section 199 is often described as the manufacturer’s deduction, that definition limits it greatly. A variety of businesses that engage in both domestic manufacturing and production can claim the deduction when all the eligibility criteria are met. Many of the other industries that routinely use the write-off provide services such as engineering or are in related fields like architecture and construction. Businesses engaged in the production and development of alternate products, such as computer software or generating energy, are also eligible.
There is a simple path
While maximizing your Section 199 deduction and crunching the complex numbers needed for accurate reporting often requires the services of an expert like French Larry Taylor, there is a simplified option known as the Small Business Simplified Overall Method. For businesses able to meet certain requirements, such as the use of cash accounting, the method examines the total cost of goods sold and apportions them between domestic production gross receipts and other receipts to determine qualified production activities income. An alternate method, Simplified Deduction, helps businesses with assets less than $10 million or gross receipts less than $100 million streamline tax filing.
Section 199 and state taxes
While the deduction is of benefit for federal filing, it does not always carry over to state taxes. French Larry Taylor recommends annual consultation with a federal and state tax professional for the latest guidance as many states have amended their codes to remove the federal deduction over time.
Corporation status is not required
The Section 199 deduction isn’t limited to traditional corporations. Individuals can take it via regular and alternative minimum tax while estates and members of partnerships and LLCs can also claim the deduction.
The deduction is not all-encompassing
The Section 199 deduction is hefty and can provide major tax savings, but it is not used in self-employment earning calculations and cannot take your net income into the negative according to French Larry Taylor.