Question

For the year 2014, Amber Corporation has taxable income of $880,000, alternative minimum taxable income of $600,000, and qualified production activities income (QPAI) of $640,000. The total W-2 wages paid to employees engaged in qualified domestic production activities are $116,000. Amber's DPAD for 2015 is__________

Answer 1

Amber Corporation's Domestic Production Activities Deduction (DPAD) for 2015 is calculated as 9% of the lesser of its taxable income or QPAI subject to the limitation of 50% of W-2 wages paid. Since 9% of the QPAI is less than 50% of W-2 wages, the DPAD is $54,000.

Step-by-step explanation:

The student's question pertains to the calculation of the Domestic Production Activities Deduction (DPAD) for Amber Corporation for the year 2015. The DPAD is calculated as 9% of the lesser of the taxable income or the qualified production activities income (QPAI), but it cannot exceed 50% of the W-2 wages paid to employees engaged in qualified production activities. In this case, we will calculate 9% of the QPAI since the QPAI is less than the taxable income, and check if it does not exceed 50% of the W-2 wages.

Calculation of DPAD

DPAD = 9% x Minimum(QPAI, Taxable Income)
DPAD = 9% x $600,000
DPAD = $54,000

50% of the W-2 wages = 0.50 x $116,000 = $58,000

Since $54,000 < $58,000, the DPAD for Amber Corporation for 2015 is $54,000.