How to Benefit From the IC-DISC Export Tax Incentive
A separate legal entity recognized by the IRS, the IC-DISC takes advantage of specific tax incentives for U.S.-based exporters. Originally enacted by Congress in 1971, it’s the last surviving incentive for U.S. companies with products or services delivered outside the United States. Get in on this export tax incentive by connecting with us today.
What Is an IC-DISC?
Who Qualifies for the IC-DISC?
You should consider setting yourself up for this export tax incentive if you:
- Have export sales of products or services over $2 million
- Have a minimum net export sales of $500,000
- Have significant tax liability on current or projected income
To qualify for an IC-DISC, you must be a U.S. exporter offering items that:
- Are grown, produced, manufactured, or extracted in the United States by a person or entity that is not the IC-DISC
- Are held primarily for sale, lease, or rental for direct use, consumption or disposition outside the United States
- Contain a minimum of 50% U.S. content
There are three steps to obtaining export sales tax savings, starting with election. Here, the exporting company creates a new legal entity and elects federal non-taxable IC-DISC status.
IRS approval is required, and setting up this IC-DISC structure requires a deep knowledge of this specific area of the tax code – our Veritax team has you covered.
After the IC-DISC status is approved by the IRS, tax savings can be realized by paying a commission to IC-DISC. This commission can be deducted at 39.6%, which reduces the ordinary taxable income of the corporation.
The commissions paid to the IC-DISC are then distributed to the owners of the IC-DISC at qualified dividend rates (23.8%), resulting in tax savings of 39.6%-23.8% or 15.8%.
While calculating the amount of commission to pay on export sales requires extensive experience, we have a few tax savings scenarios to illustrate the possible savings:
- $250,000 IC-DISC commission → $39,500 tax savings
- $2 million IC-DISC commission → $316,000 tax savings
- $5 million IC-DISC commission → $790,000 tax savings
Ready to explore your tax savings? Book a free consultation with a Veritax IC-DISC tax expert today.
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