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.