Architects & Engineers Articles -
New deduction provided for portion of income attributable to U.S. manufacturing, construction, engineering and architectural services

The American Jobs Creation Act of 2004 allows a deduction of up to nine percent of the lesser of taxable income or qualified production activities income. The deduction cannot exceed 50% of the company's W-2 wages, but is allowed for both regular and alternative minimum tax purposes. The deduction is phased in as follows:

Qualified production activities income applies to income from the license, lease, rental, sale, exchange or other disposition of: 

• Any tangible personal property which is manufactured, produced, grown, or extracted by the taxpayer in whole or in significant part within the United States; 
• Motion pictures and television productions in the United States; 
• Electricity, natural gas, or potable water produced in the United States; 
• Construction performed in the United States; and 
• Engineering or architectural services performed in the United States for construction projects in the United States. 

The amount of income eligible for the deduction is equal to the gross receipts from the above activities less the cost of goods sold, direct expenses (i.e. selling expenses) and a proportionate amount of indirect expenses (i.e. general and administrative expenses). Taxpayers eligible for the new deduction should evaluate the timing of certain deductions, as they may be more beneficial in 2004 than in subsequent years. 

The deduction is available to C corporations, S corporations, partnerships, estates and trusts. 

Taxpayers with a current year loss or with net operating losses will not benefit from the new deduction.

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