Do you own a profitable business that sells to foreign countries? If most of your production dollars are inside the U.S., you may be able to save between 15% to 20% in taxes through an underutilized export tax incentive called Interest Charge – Domestic International Sales Corporations (IC-DISC ).
The IC-DISC is an entity through which you can make an intercompany payment as you sell your products to customers in foreign countries. Most IC-DISCs are “paper” companies meaning they are not required to have employees or office space—just separate books and records.
The IC-DISC classification enables qualifying businesses to use the designation to significantly cut their income tax bill from their export revenue. Profits are taxed at the dividend rate, as opposed to the ordinary income tax rate, making it well worth exploring if your business is exporting goods overseas.
For example, a company with $1 million of export sales could expect to save $8,000-$13,000 of income taxes annually if they have an IC-DISC in place. The IC-DISC tax benefit automatically scales to the export sales level, thereby increasing the tax benefit as the export sales increase.
Since passage of the Jobs Act of 2004, any U.S. company that directly exports goods it manufactures here may create an IC-DISC to act as the “selling agent” for its operating business. However, many export companies that could benefit from the tax savings available through IC-DISC fail to do so. According to some estimates, only 6,000 businesses take advantage of the tax savings of an IC-DISC. IRS statistics suggest that only about 25% of the potential IC-DISC benefits that are available are actually being captured.
The following entities benefit from an IC-DISC:
- Manufacturers that export their products
- Manufacturers that sell products whose ultimate destination is outside the U.S.
- Distributors who sell U.S. made products going outside the U.S.
- Architectural and engineering firms who work on projects that will be constructed outsideof the U.S.
- Pass-through entities (partnerships and S-corporations) and closely held C-corporations
Don’t miss out on an outstanding opportunity for tax savings. There are a number of complex rules on how to compute the sales commission, but properly structured, you can maximize the income that is sheltered by the IC-DISC.
If you have any questions about the content in the article, or would like to learn how your business can succeed overseas, contact Jason Rauhe at 888-201-4484or email firstname.lastname@example.org.