But now, it can also help you save a bundle on taxes . . . If you now how to take advantage of a little known deduction in the tax code.

The deduction is found in Section 199 of the Internal Revenue Code. It applies to business activities that in some way related to installing, developing, improving or creating goods that are "manufactured, produced, grown or extracted by the taxpayer in whole or in significant part within the United States." For the 2007 tax year, the deduction can total up to 6% of the lesser of qualified activities or taxable income. Even better, the deduction is recurring, which means it can be taken year after year.

That's the good news. The not-so-good news is that 199, or QPA (Qualified Production Activities) deductions are subject to limitations and calculating the amount of the deduction can be complicated, to say the least. But with a little research, it's possible to shave thousands off your tax bill.

Qualified Production Activities

The first step in calculating a Section 199 deduction is to determine whether your business activities are eligible as "qualified production activities". Qualified activities covered under Section 199 include U.S. based: Manufactured products (along with their selling, leasing, and licensing), motion pictures, construction services, engineering, architecture, and software development.

The tricky part is that you have to keep track of the non-qualified portions of sales, even if these services are normally included with the sale of a qualified item. For example, if your business manufactures business equipment and typically offers free training with the purchase of your products, you may have to assign a portion of the sales price to training for the purposes of calculating your QPA deduction.

Activities that are specifically excluded from the QPA deduction include cosmetic construction, leasing or licensing to a related party, and retail food or beverage sales. Also, if your company does business outside of the U.S., additional restrictions may apply.

Calculating the Deduction

The QPA deduction is based on net income, so to calculate the amount of the deduction you will need to apply the following formula: Qualified production activities income minus qualified production activities expenses times the QPA deduction percentage (6%).

It's important to know that the QPA deduction applies to tax years 2005 – 2010, and was established on increasing schedule. If you need to amend returns from 2005 or 2006, the QPA deduction percentage was 3%. For 2007 through 2009, the percentage is 6% and increases to 9% for 2010 and subsequent years.

Determining the eligibility of qualified activities and expenses, and calculating the amount of the actual deduction can become a highly complex process. Although it's a good idea to talk to your accountant about the best way to take advantage of the deduction, it's probably advisable to leave the calculation to a professional tax preparer.