Marsh Harbor Company manufactures fishing gear.Its taxable income in 2016 before the Qualifying Production Activities Deduction (QPAD)is $4,000,000 and its qualified production activities income is $3,500,000.Its qualifying W-2 wages paid are $300,000.How much may Marsh Harbour claim as its QPAD deduction in 2016?

Question

Quizplus · Accepted Answer

The QPAD deduction is 9% of the lesser of the taxable income before the deduction ($4,000,000) or the qualified production activities income ($3,500,000). Therefore, 9% of $3,500,000 is $315,000. However, the deduction is also limited to 50% of the W-2 wages paid, which is $150,000 (50% of $300,000). Thus, the allowable deduction is $150,000.

Marsh Harbor Company Manufactures Fishing Gear