The Section 199 Deduction is a valuable tax deduction for domestic production and manufacturing activities to incentivize retaining manufacturing jobs in the U.S. The definition of ‘production’ is also broad and also applies to software development and production of qualified films. Note for 2010, the Section 199 deduction rate increases to 9%, making the deduction even more valuable for companies already claiming Section 199 benefits, and for companies considering claiming the deduction.
If you are considering the deduction, recall that the deduction is based on a qualifying revenue stream derived from the lease, license, sale, or other disposition associated with the production of tangible personal property, audio recordings, or qualified films. Often, the nuances of identifying qualifying revenue streams and properly matching direct and indirect expenses associated with those revenues can be tricky. However, the benefits are typically well worth the effort, particularly for tax years beginning in 2010 with the significant rate increase for Section 199 activities.