In the United States, most corporations know using the Interest-Charge Domestic International Sales Corporation (IC-DISC). The IC-DISC is a provision of the tax code intended to help American companies who compete internationally. It assists them with reducing their top federal tax rate from 39.6 to 20 percent by giving them an incentive.
A large percentage of companies in the United States use basic accrual IC-DISC methods of calculation. However, there are other methods which are encouraged to yield a higher result. You could look at it as claiming a standard deduction on your own individual tax return when your deductions should be much higher.
Many companies in the US are able to enjoy computer-based trading for approximately 4% of their gross sales or 50% of taxable income from export sales. Some believe this is the maximum benefit they are able to receive. In reality, those should be considered the minimum amount of commissions which are a result of the most basic methods.
In order to truly maximize your allowable and intended benefits of an IC-DISC, you need to go a step further with your calculations. The only things you need? A little bit of time and patience. Your enterprise may enter a contract that yields a loss, but can generate commission. If you have a product with less than average profit margins compared to a similar product group or line that may yield additional benefits.
Obviously, there are going to be unforeseen costs that come up or a fluctuation in the price of materials. Savings increased with the IC-DISC are usually a result of variability and provide a nice incentive to help effectively compete in the export market.
Improve Your IC-DISC Each Year
There are additional structures in place to assist you with increasing your revenue on the export profit. You have to accept added risk and rearrange the United States exporters responsibilities and business flow.
It is possible with a company’s combined taxable income (CTI) that you could increase your commission from 50% to 85%, if you own a Foreign International Sales Corporation (FISC). These activities include:
- Buy/Sell IC-DISC – Qualified export inventory is purchased directly from the parent company by the IC-DISC. They also take the title to the merchandise, mark it up and export it to the customer. You need to review Section 482 of transfer pricing study,
- Safe Harbor Buy/Sell IC-DISC – Here, the IC-DISC purchases and sells the export property. The parent company then reimburses the IC-DISC paid export plus 10%. This does not require Section 482 transfer pricing study.
- IC-DISC with FISC – The IC-DISC owns 100% of the Foreign International Sales Corporation (FISC) that buys and sells marked up exports to foreign customers. FISC has to be located outside of Puerto Rico or the United States. This requires a Section 482 transfer pricing study.
- Export Invoice Factoring – Invoices connected to commissions paid from parent company are purchased by the IC-DISC. They are often purchased at a discounted rate of 3-4%. This requires a Section 482 transfer pricing study.
Don’t Overlook Your Incentives
There are many manufacturing companies around the United States who should know not to miss out on these incentives. If you are living in the Charleston, SC area and are a software producer, architect, distributor, grower, engineering firm or an equipment leasing company, contact Export Tax Management today to find out how we can help you save money!
If your products are used outside of the United States, your company should qualify. It is even possible, if you ship your products to another company overseas and it is returned to the United States for your incentives to be more generous.
Export Tax Management is here to provide you with maximum export tax savings with unmatched personal attention. Contact us today and let us help your company learn about the incentives they may be missing out on. 888-646-5518