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IC-DISCs – A Powerful Tax Savings Tool for Exporters

an aerial view of a cargo ship on the ocean

Do you have a business that exports property/goods manufactured, produced, grown or extracted in the United States?

If yes, then there is a powerful tax savings opportunity that is provided by the US government as an incentive to exporters. Interest Charge – Domestic International Sales Corporations, IC-DISC for short, are domestic tax exempt corporations that are created by the exporting company.

The mechanics of the IC-DISC are simple:

Exporting company pays a deductible commission to the IC-DISC.  The commission is based on either the percentage of the company’s gross profit or percentage of its annual export receipts.  However, this commission cannot create a loss on sales for the exporting company. The commission paid is tax deductible by the exporting company that pays it and the commission income to the IC-DISC is tax exempt.

If the exporting company is a pass-through entity (such as a Partnership, S Corporation, or LLC), the dividend is taxed at the favorable qualified dividend rate (20%) instead of the ordinary income tax rate (up to 39.6%).  If the entity is set up as a C-Corporation, it is eligible for 100% dividend received deduction. In both the cases, there is a great deal of tax savings for the exporter.

The businesses that qualify for IC-DISC tax benefit include:

  • Manufacturers directly exporting the software, films and many agricultural products that they produce in the US
  • Architectural or engineering services conducted in the United States for construction outside the US
  • Manufacturers of a component or part that is included in an export item
  • Export sales delivered in the US to be delivered, used or consumed outside the US provided the export of such items happens within one year of the date of receipt in the US

Most intellectual property such as patents, inventions, designs and the like or products that deplete such as oil, gas and coal are not eligible export property.

Don’t become one of the many businesses that overlook their chances of being eligible to use IC-DISCs and lose their tax savings.

An IC-DISC’s tax benefits aren’t retroactive; these benefits are available only for export sales made after the IC-DISC is established. The sooner you act, the greater your tax savings.  Please contact Wegner CPAs to learn more about this tax break.

Would you like to learn more?

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