As Tax day approaches its important to take into account targeted deductions that benefit Creatives. One such deduction is the Domestic Production Activities Deduction (AKA Section 199 deduction) which was meant to encourage U.S. job creation. The deduction was created in 2004 as a part of the American Jobs Creation Act of 2004 and is one of those nice benefits that is targeted at small businesses operating as sole proprietors, partnerships, LLC, or S Corps.
So What?
For many creative based businesses, this deduction may provide a significant deduction on gross income, based on the amount of W-2 wages spent in the production of their work. The deduction specifically singles out wages paid out in the sound recording, software (including websites), and film (excluding porn) industries, as well as producers of personal tangible items (clothing, books, etc.) for an additional tax credit against profits.
What to do?
Simple – if you are engaged in one of these categories, had a profit, and paid W-2 wages, make sure that your tax preparer is aware that you may have this additional 6% deduction available to you, or if you prepare your own taxes, be sure to look though the instructions for Form 8903 .
IRS Circular 230 Notice:
United States Treasury Regulations require me to disclose the following: Any tax advice included in this document is not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code.