When business begin researching Interest Charge Domestic International Sales Corporation (IC-DISC), it may feel slightly overwhelming. Export Tax Management is here to help you understand how an IC-DISC gives permanent and significant tax savings for producers and distributors of products made in the United States which are used abroad.
Are You Exporting Products?
Years ago, Americans lived in a country where all of your customers were your neighbors. As time moved forward, towns and cities close by were formed. A business then had to find new ways to get their products to new customers in order to increase their customer base. Before we knew it, businesses were having to cross state lines and figuring out how to properly continue to get their products to new areas of the United States. Now, there are many businesses within the United States exporting their products overseas. For those companies exporting their products, the IC-DISC tax code is a great benefit for you.
Many businesses were not aware of the IC-DISC benefit, although it has been around for about 30 years, until the mid-2000s when dividends transformed into capital gain rates. Before the mid-2000s they were just ordinary income tax rates. Even after this transformation, many businesses were not sure how long the benefit would be around, so many opted out. Since we are not planning to see an increase in dividend tax rates, more businesses are beginning to explore the IC-DISC for exporting their products.
If you’re interested in learning more about the intricacies of IC-DISC, be sure to check out our related articles here:
Commission on Export Sales
The IC-DISC can be used effectively by companies in a couple of different ways. The one most seen by the IRS is for the company to pay a tax-deductible dividend/distribution. Companies do this by using their company operating system to pay the commission on export sales to the IC-DISC. The commission paid is the deductible of the operating company. The IC-DISC is not required to pay tax on the commission it obtains. The money is instead distributed to the shareholders within the company.
Tax Savings Explained
The capital gain rate is 0% to 20% for what is taxable to the shareholders, whereas the generated commission rate at an ordinary income rate is 15% to 39.6%. This means, a $100,000 commission that goes through an IC DISC has the possibility of generating tax savings of somewhere around $20,000.
IC-DISCs Are Not Risky Business
Many businesses may think, this is far too difficult and risky for my business. In actuality, an IC-DISC is nothing more than a paper corporation, funded with $2,500 capital, and requires the business to annually calculate the commission on export sales on a separate tax return. However, when you work with Export Tax Management of Charleston, SC, we help to make the process seem simple. We help you realize this is not at all anything risky for your business. To spell it out a little differently, a compliance cost of around $2,000/year, could help your business get a tax savings of many multiples of that amount.
If you’re interested in learning more about the intricacies of IC-DISC and how it can benefit your export business, be sure to check out our related articles here:
Contact Export Tax Management Today!
If your company is exporting at least $500,000 a year in products out of the United States or possibly receiving parts outside of the US for a product which will then be exported to another country, and IC-DISC makes the most sense. If your export sales are highly profitable, but do not meet the $500,000 minimum, it is possible you could benefit. If your company focuses on export sales, contact Export Tax Management today! Let us help your business start understanding the tax benefits of an IC-DISC today!