Tax & Accounting Blog

Driving Revenue with UltraTax CS Data Mining, Part 7: Finding clients who may qualify for the DPAD deduction

CS Tax & Asset Management Solutions August 19, 2014

Finding an often-overlooked tax savings opportunity for business owners paying wages 

The Domestic Production Activities Deduction (DPAD) is one of those often-overlooked tax deductions that can make you a hero to your small business clients. Most small businesses don’t know about it. It’s under-claimed nationwide. And it’s likely that some of your small business clients qualify. 

One of the best ways to identify DPAD candidates is to find clients who file a 1040 Schedule C but do not file the DPAD deduction form (Form 8903). One quick search in UltraTax CS Data Mining and you could be on the phone with your clients telling them about their big new tax break. Even better, you can offer them advisory services to help them maximize their savings. 

Below, I’ve outlined the steps for creating an automated report that lists Schedule C gross receipts, wages paid, and corresponding NAICS code/descriptions. I’ve also described how to create a search that will display only the clients who are not filing Form 8903. Once you have the list, you can even write a letter or email describing the benefits of DPAD and have UltraTax CS Data Mining send it to all qualified candidates (though it might be more fun to deliver the good news yourself). 

Building the DPAD candidate report 

  1. Open UltraTax CS and select Utilities > Data Mining.
  2. Select 1040 Individual and click the Continue (Step 2) button.
  3. Click the Design Custom Reports button near the top-right.
  4. Click the Add button to add a new custom report.
  5. Enter “DPAD Candidates” as a description, but do not select a template.
  6. Click Continue.
  7. Select over the Client ID value.
  8. Change the Product drop-down at the top left to Federal.
  9. On the left, click Input screen field.
  10. Click the Select Field button.
  11. Navigate into the Business folder, highlight the Business name field, and click Select at the bottom.
  12. Change the Field length to 20 in the box to the right.
  13. Repeat Steps 10 and 11 for the following fields, also located in the Business folder on Screen C.
    • Business code
    • Business description (the longer field to the right of the Business code field); change the field length to 30 after selecting it
    • Gross receipts and sales
    • Labor (in the Cost of Goods Sold section at the bottom of Screen C )
    • Wages (on Screen C-2)
  14. Change the font size of the report (near the bottom-left) to 8.
  15. Click OK at the bottom right to save the report, then click Done to exit the listing of custom reports.

Building a custom search to populate the report 

  1. In Step 2 of Data Mining, click the Add/Modify Searches button.
  2. Click the Add button.
  3. Enter a search name, such as “DPAD candidates.”
  4. Leave the Product drop-down set to Federal, but change the selection below to Input screen field.
  5. Highlight US: C, Gross receipts or sales contains any keyed data  and click the Select button.
  6. Click the Add/Modify button on the left to add a new criteria item, and then click the Add button.
  7. Navigate to the Business folder and Screen C-2, highlight the Wages field, and click Select at the bottom.
  8. Change the Operator to Any Keyed Data and click Enter towards the middle-right to save this criteria item.
  9. Click Add again and repeat the same process described in steps 7 and 8 for the Labor field near the bottom of Screen C.
  10. Click Done to exit the Add/Modify Search Criteria window.
  11. Select both of the newly created criteria items to the right, which should be listed with the following descriptions:
    • US: C-2, Wages contains any keyed data
    • US: C, Labor contains any keyed data
  12. Click the Edit Formula button near the bottom-right.
  13. Click and drag the listing for US: C-2, Wages contains any…and drop it into the “OR” column in the same row as US: C, Labor contains any…item.  This will alter the formula to look for clients with a value in one fieldorthe other.
  14. Click Done to finish editing the search criteria.
  15. Change the selection to Form near the top-left and change the selection below the listing of forms to Not prepared.
  16. Scroll down the list and select over Form 8903 [Not prepared].
  17. Click Done to save this new custom search.
  18. In the list of searches, click the drop-down in the Recommended report column for our recently-created DPAD Candidates report, scroll towards the bottom of the list of reports, and select our corresponding DPAD Candidates custom report.
  19. Click Done to exit the list of searches.

Running the search and corresponding report

  1. When you return to Step 2 of Data Mining, both the DPAD Candidates report and the corresponding search of the same name should already be selected.
  2. Select Continue at the bottom.
  3. After the search completes, click Done to exit the search results dialog and proceed to Step 3 of Data Mining.  Once there, you can print and/or preview the report to identify candidates for DPAD consideration based on the contents of the report.

You can also compose a new client letter describing the benefits and requirements of the Domestic Production Activities Deduction, which you can select to generate for all identified clients. UltraTax CS Data Mining can then print paper copies of the letter, or send it as an email to clients with an email address on file.

Repeating the process for the other tax return types

The steps above outline the process of identifying DPAD candidates among your 1040 individual clients. It’s not difficult to repeat the process for your non-1040 clients in each of the respective Data Mining databases.

The elements of the report will be the same, and the criteria of the search will also be the same. But some of your criteria will appear on different screens, so you’ll need to make a few minor adjustments for each entity type. It’s a good way to find even more DPAD candidates with just a little additional work.

Explaining the DPAD deduction to your clients

We all know that explaining arcane tax deductions like DPAD to your clients can be a challenge. So I’ve found a simple explanation that may help. You’ll find it here

Come back on September 2 for my next blog entry, where I’ll show you how to use UltraTax CS Data Mining to find a variety of state-specific tax credits. Until then, feel free to post your questions and comments below.