Discussion:LLC claiming DPAD

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Discussion Forum Index --> Tax Questions --> LLC claiming DPAD

Sunny (talk|edits) said:

18 February 2007
100% of LLC's gross receipts qualify for the Domestic Production Activity Deduction; on the member's K-1 on line 13, there is a note which shows the qualified gross receipts; so far as good. Now the member is trying to claim the deduction on his individual return using form 8903. The deduction is limited to 50% of the W-2 wages - this confuses me:

LLC did not pay any W-2 wages but has SE income; the spouse has W-2 income. So the 50% limitation is calculated based on his SE income or his spouse's W-2 wages? Thank you in advance.

Kevinh5 (talk|edits) said:

18 February 2007
For tax years beginning on or after May 17, 2006, TIPRA amended W-2 wages for the DPAD calculation to include only wages paid which are allocable to the gross receipts of the qualifying activity. (Final Regs and Rev. Proc. 2006-22.) For tax years earlier than that, you would use wages paid by the taxpayer's entities (Proposed Regs and Notice 2005-14).

Sunny (talk|edits) said:

18 February 2007
Thank you Kevin. I read through Rev. Proc. 2006-22 and concluded that the spouse's w-2 income can not be used for Sec 199 purposes. The Rev Proc did not address whether SE income of the LLC member (which is subject to SS and MC taxes and which will be reported to SS Administration) is considered W-2. As you know, LLC is not allowed to pay members wages/salaries, thus no w-2 forms. Had this entity been a S-Corp, there will be a w-2. Could you give me more guidance on this issue? Thanks again.

Deback (talk|edits) said:

February 19, 2007
If the LLC paid no W-2 wages, there will be no DPAD.

Kevinh5 (talk|edits) said:

19 February 2007
Technically, for 2005 and 2006, a SMLLC Sch C and a LLC taxed on a 1065 could pass through the other items (QPAI) for the DPAD deduction, and a MFJ taxpayer could use W-2 wages paid by other direct entities (spouse's Sch C). This will not be the case for 2007 because of TIPRA.

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