Domestic Production Activities Deduction - Available for Dental Practices

Chris Torregrossa, CPAOur first question is “Do you utilize a CEREC in your practice?”  If the answer is yes; are you taking advantage of the Domestic Production Activities Deduction?  If not you are leaving money on the table.

The Domestic Production Activities Deduction is available to a small business which has Qualified Production Activities which are defined as “Manufacturing based in the United States.”   Given that the CEREC machine is effectively a milling machine which produces “biocompatible, highly esthetic restorations”, we have concluded that the production activity is “Qualified” under the Internal Revenue Code Section 199.

The calculation of the credit is fairly simple as follows:

Qualified production activities income
Minus Qualified production activities expenses
Equals Qualified production activities net income
Times the deduction rate of 6% for 2009 (for 2010 the rate is 9%)
Equals the Tentative deduction

There are some limitations.  Primarily the deduction cannot exceed adjusted gross income (for sole proprietors, partnerships, S-corporations and limited liability companies) or taxable income (for C-corporations).  The deduction is also limited to 50% of W-2 wages

Based on real life application of our research we have seen on average an additional deduction of approximately $4,000 per year, effectively a $1,600 tax savings.

The above calculation creates an additional deduction with no additional cash outlay.  The Domestic Production Activities Deduction should be utilized to help reduce the dentist’s heavy tax burden.  

Not all CPA’s understand the business of dentistry to really take the maximum advantage of tax breaks allowed in the Internal Revenue Code.  Your CPA needs to understand your business not just prepare tax returns based on your records.

Price Kong & Company is committed to utilizing its resources to gain you every advantage in your business.  Let’s face it, an investment in a CEREC is not cheap and although most dentist understand the benefit of the first year write-off of equipment purchases few have thought about taking advantage of the Domestic Production Activities Deduction.

If you are interested in learning more about the Price Kong approach to dental practice accounting and how we leverage and integrate tax planning, income tax preparation, accounting procedures and financial controls, please contact Chris Torregrossa, CPA.

Christopher Torregrossa, CPA
Director Dental Practice Group
Price Kong & Company
Chris@pkcpa.com
(602) 776-6317