IRC Section 199 Domestic Production Activities Deductions (DPAD) represents a valuable tax incentive for businesses that perform domestic architecture, engineering, and construction services. Eligible engineering and architecture services include consultation, investigation, evaluation, planning, design and supervision of construction. Construction activities must be domestic and can include residential or commercial building improvements as well as infrastructure projects. Generally, the tax deduction can be as much as 9% of taxable income.
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Software Firm Case Study
|Item||Average Annual Amount|
|Qualified Research Expenses (QREs)||$1,250,000|
|Net Federal Credits||$82,500|
|Net State Credits||$37,000|
|Total Net Federal and State Credits||$119,500|
Examples of Qualified Activites
Many owners, officers, and CPAs of software companies are unaware that they are eligible for valuable federal and state Research & Development (R&D) Tax Credits. However, due to the expansive definition of R&D for tax credit purposes, many of the software coding and testing, as well as version improvements, performed by software companies often qualify for such treatment.