Hippo, Inc., a calendar year C corporation, manufactures golf gloves. For 2011, Hippo had taxable income (before DPAD) of $800,000, qualified domestic production activities income of $950,000, and W-2 wages related to qualified production activities income of $130,000. Hippo's domestic production activities deduction for 2011 is:
A) $0.
B) $65,000.
C) $72,000.
D) $85,500.
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 ($950,000) or taxable income ($800,000), which is $800,000. Therefore, 9% of $800,000 is $72,000. However, the deduction is limited to 50% of W-2 wages ($130,000), which is $65,000. Thus, the DPAD is $65,000.