Domestic Production Activity Deduction
The Domestic Production Activity deduction (DPAD) allows business owners with employees who are engaged in the production of tangible personal property and computer software, or provide engineering, architecture and certain construction services, amongst other things, to deduct up to 9% of their qualifying production activities income (QPAI). The DPAD was introduced to provide tax incentives to U.S. manufacturers, however, many small business owners may also be able to realize benefits from the deduction. You can calculate your DPAD using Form 8903, before deducting it from your gross income on your Form 1040. Note that this is not a Schedule C deduction.