In 2011,Summer Corporation earns domestic gross receipts of $2 million and incurs allocable expenses of $800,000.It has $400,000 of income from other sources,resulting in taxable income of $1.6 million before the U.S.production activities deduction.What is its U.S.production activities deduction?

Question

Quizplus · Accepted Answer

The U.S.production activities deduction is equal to 9% of the lesser of:
1. Qualified production activities income (QPAI), which is equal to domestic gross receipts minus allocable expenses
or
2. Taxable income before the U.S.production activities deduction, which is $1.6 million.

So, the U.S.production activities deduction is 9% of $1.6 million, which is $144,000. However, the deduction cannot exceed 50% of the W-2 wages paid by the taxpayer, which in this case is not given. Therefore, we can assume it is not limited by wages. Thus, the U.S.production activities deduction is $108,000 (9% x $1.6 million). Therefore, the correct answer is B) $108,000.

In 2011,Summer Corporation Earns Domestic Gross Receipts of $2 Million