Posted by Lynn Eller in Tax: Business, Tax: International.
By Lynn M. Eller, CPA, APCIT, PFS
Understanding the IC-DISC Incentive
Keep reading to understand:
Unless your business is taking advantage of the special export tax incentive known as IC-DISC (interest-charge domestic international sales corporation), you may be leaving money on the table and nobody wants that.
What Is IC-DISC?
The IC-DISC is an incentive that aims to stimulate growth in U.S. jobs by increasing sales of products overseas.
Individual business owners in the U.S. can form a tax-exempt IC-DISC company that is owned by an operating pass-through company (S corporation or partnership).
What Are the Advantages of the Incentive?
An IC–DISC can be used to achieve a significant and permanent tax savings for qualifying companies.
The operating company can pay a tax-deductible commission to the tax-exempt IC-DISC. A tax savings of up to 29.6% results from this commission deduction. The “commission” is calculated based on qualified export revenue. The IC-DISC then pays a dividend to the operating company owner. The qualified dividend is taxed at up to 23.8%. The result is a conversion of certain export income from a tax rate of 29.6% to 23.8%, a savings of 5.8%.
Who Might Qualify?
The assets exported must meet certain qualifications, including:
- Be manufactured, produced, grown, or extracted in the U.S.
- No more than 50% of the fair market value of the product can consist of foreign components
- Sold for direct use, consumption, or disposition outside the U.S.
- Engineering and architectural services related to foreign construction projects are also included.
Is an IC-DISC Right for Your Business?
If your company fits one of the following descriptions, exploring an IC-DISC makes sense:
- You sell U.S. goods overseas.
- Your firm works on foreign construction, architectural, or engineering projects.
Of course, every business must analyze how the IC-DISC structure could impact other existing tax strategies.
Our team at PBMares can help evaluate whether establishing an IC-DISC makes sense. From there, we can help you form your IC-DISC entity, meet reporting requirements, properly calculate commissions, and more.
Contact us to learn more.
Be sure to consult with your financial or tax advisor on this topic as individual situations may vary. The information contained in this article or webinar, and any related materials, are for informational purposes only, and cannot be relied upon for legal, financial, tax, accounting, or other professional services advice. The content is provided on an “as is” basis and PBMares makes no representations or warranties about the accuracy or sustainability of any information for your purposes. For any specific questions you may have, please contact us.
This content is accurate at the time of publication. Always ensure you are reviewing the most recent information available. Contact your tax or financial advisor if you need clarification.
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About the Author
Lynn Eller
CPA, APCIT, PFS
Partner, International Tax Team
Fairfax
Lynn’s knowledge of owner-managed businesses’ tax needs and hands-on approach to her work makes her a valued asset to her clients in a variety of industries, including professional services, real estate, healthcare, and manufacturing.
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