The Rollins Group produces training corporate training videos. It operates as a sole proprietorship and is 100% owned by Scott Rollins. For 2011, Rollins has gross receipts from qualified production activities of $1,500,000. The cost of goods sold related to these receipts is $1,200,000 and the direct costs related to these receipts is $100,000. Rollins estimates that 30% of its indirect costs of $50,000 are attributable to its qualified production activities. Scott’s adjusted gross income is $200,000.
a. What is Rollins’ qualified production activities income?
b. What is Rollins’ qualified production activities deduction?
c. Assume that Rollins W-2 wages allocable to its domestic production gross receipts (DPGR) are $150,000. How does this impact Rollins’ qualified production activities deduction?