By Lynn M. Eller, CPA, APCIT, PFS

Understanding the IC-DISC Incentive

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.