Hippo, Inc., a calendar year C corporation, manufactures golf gloves.For 2012, Hippo had taxable income (before DPAD) of $900,000, qualified domestic production activities income of $750,000, and W-2 wages related to qualified production activities income of $140,000.Hippo's domestic production activities deduction for 2012 is:
A)$0.
B)$12,600.
C)$67,500.
D)$70,000.
E)None of the above.

Question

Quizplus · Accepted Answer

The domestic production activities deduction (DPAD) is calculated as 9% of the lesser of:
- Qualified production activities income (QPAI)
- Taxable income before DPAD

In this case, Hippo's QPAI is $750,000 and their taxable income before DPAD is $900,000. Therefore, the lesser amount is $750,000, and 9% of that is $67,500. However, there is a limitation on the DPAD based on W-2 wages related to qualified production activities income. The limitation is 50% of W-2 wages, which in this case is $70,000 ($140,000 x 50%). Since the calculated DPAD ($67,500) is less than the limitation ($70,000), Hippo's DPAD for 2012 is $67,500.

Therefore, the answer is C.