written by Patti Stoner
Domestic Production Activity Deduction (DPAD) is a mouthful to say. As a dentist, you may think, “I’m not a manufacturer. Why do I care about this federal tax deduction?” This may not apply to all dentists but there are certain processes some dental practices perform that can garner a nice tax deduction. It is an often overlooked valuable deduction.
The ABC’s of DPAD:
- Domestic – the product/activity must be generated within the United States
- Production – generating/creating tangible personal property, computer software and sound recordings
- Activity – such as manufacturing, producing, growing, extracting, installing, building, developing, improving and creating qualified production property
- Deduction – creates a deduction not a tax credit for federal income tax purposes
For a dental practice, use of ceramic reconstruction equipment such as CEREC™ or other CAD/CAM technology will qualify as a manufacturing activity. The process it performs is milling the materials to create a crown or other restoration for the patient while they are in your chair, rather than taking an impression and sending it to a lab to create the crown then later seating it, requiring a second or multiple patient visits. Milling is considered a manufacturing process that the IRS will allow.
The deduction is 9% of the net income from this activity, after deducting related costs, etc. Additional analysis by your CPA can determine if your activities qualify for this federal income tax deduction. Contact us if you have any questions about this deduction.