← FarmCPA Home

Must Have W2 Wages to Deduct DPAD

By: | Trackback URL | 1 Comment

February 25th, 2013

We got this question from a reader today:

“Can  the amount I contribute to my solo 401k as deferred compensation be used as wages when figuring the domestic production activities deduction? I have no other wages.”

Several years ago Congress placed into law a Domestic Production Activities Deduction (DPAD) that was primarily in response to the World Trade Organization disallowing some of our other tax incentives.  As a result, farmers are entitled to deduct approximately 9% of their net farm income as long as they meet certain other rules.  One of the rules limits the deduction to 50% of W2 wages. 

If the farmer is sole proprietor and has no employees, then the only DPAD deduction available is if they have a flow-through DPAD deduction from a cooperative. 

In the case of our reader, since he has no employees wages and the solo 401k is not considered wages, then no DPAD deduction is available.

This is a case where it may make sense to pay your spouse a wage to take advantage of the DPAD deduction and in many cases it will allow you to deduct more 401k expense.  The offset is that payroll taxes will be owed on the wages to your spouse and that cost may outweigh the deduction benefit.

Paul Neiffer, CPA

Paul Neiffer

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation. Leave a comment for Paul. If you would like to leave a comment for Paul, follow the link above, however, please make sure to include your email address so that he can reply to your comment (your email address will not automatically show up).

More Posts - Website

Follow Me:
Twitter

← FarmCPA Home

1 Comment

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Subscribe to this blog by:

Previous Posts

Events

View upcoming speaking engagements and other networking events for Paul Neiffer and CliftonLarsonAllen’s agribusiness team.

See All

  • Twitter Feed

    Great time with @MRRChip today on Market Rally talking about the new farm bill. 21 hours ago

    Drove over 2,000 miles in last 12 days. Saw a lot of good looking corn. Beans not so much 3 days ago

    When you drive through Minnesota, South Dakota and Iowa this time of year you see a lot of corn and beans and not much else 2 weeks ago

    Possible another reason for high US corn yield estimates is acres switched to beans were lower yield corn acres 2 weeks ago

    Don't understand why nobody claims the USDA manipulates the data when the report is bullish 2 weeks ago

    USDA pegged lower corn production but if yields trends continue this will quickly change to production increase. 2 weeks ago

    The soybean YO-YO is well underway 2 weeks ago

    If prices stay where they are at I estimate some farmers will $100 ARC payments next October. Could be difference between profit & loss 2 weeks ago

    I think the corn and bean markets are starting to feel like Brazil in the World Cup on Tuesday 2 weeks ago

    Do the Highs in Live Cattle equal the Lows in Corn and Beans 2 weeks ago