Question

Sarah Ham, operating as a sole proprietor, manufactures printers in the United States. For 2014, the proprietorship has QPAI of $400,000. Sarah's modified AGI was $350,000. The W- 2 wages paid by the proprietorship to employees engaged in the qualified domestic production activity were $60,000. Calculate Sarah's DPAD for 2014.

Answer 1

Sarah's DPAD for 2014 is the lowest among 9% of her QPAI ($36,000), 9% of her AGI ($31,500), or 50% of the W-2 wages ($30,000). The maximum DPAD she can claim is $30,000.

Step-by-step explanation:

The student's question revolves around calculating the Domestic Production Activities Deduction (DPAD) for Sarah Ham, a sole proprietor manufacturing printers in the U.S. in 2014. To calculate Sarah's DPAD, we use the information provided about her Qualified Production Activities Income (QPAI) of $400,000, modified Adjusted Gross Income (AGI) of $350,000, and $60,000 of W-2 wages paid to employees involved in the qualified production activities. According to the tax regulations in effect for 2014, Sarah's DPAD would be the lesser of:

• 9% of her QPAI,
• 9% of her adjusted gross income (AGI), or
• 50% of the W-2 wages paid to her employees related to the domestic production activities.

After these calculations, we find that:

1. 9% of QPAI: $36,000 (9% of $400,000),
2. 9% of AGI: $31,500 (9% of $350,000),
3. 50% of W-2 wages: $30,000 (50% of $60,000).

The lowest of these three amounts is $30,000, which would be the maximum DPAD Sarah can claim for 2014.