Small and medium sized companies that establish an Interest-Charge Domestic International Sales Corporation (IC-DISC) are eligible for a substantial tax incentive on exports. The tax law provides an opportunity for companies using an IC-DISC to defer up to 50% of export sale profits by converting them from ordinary income to qualified dividend income. Thousands of businesses take advantage of IC-DISC benefits each year, yet many eligible businesses have not explored the option.
Benefits of IC-DISC
1) A U.S. company that directly exports goods it manufactures.
2) A U.S. company that provides architectural or engineering services that are conducted in the U.S.
3) A U.S. company that manufactures a component part included in a larger product that is exported. This is possibly the largest missed opportunity for businesses when it comes to the IC-DISC.
How Does IC-DISC Work?
A business first creates a separate entity and elects IC-DISC status. In most cases, the exporter will pay commissions to the IC-DISC, which are deductible to the exporter at the company’s ordinary effective tax rate. The commission income in the IC-DISC is then deferred or paid as a dividend (actual or deemed) to the shareholders, at which point the income is taxed at the qualified dividend rate. In short, the rate differential amounts to a permanent tax savings for U.S. exports and their shareholders.
Contact Our IC-DISC Experts
The IC-DISC holds huge potential tax savings for manufacturers and service providers doing business overseas. To discuss your eligibility or to find out more about the IC-DISC, please contact me at BHein@BarnesDennig.com or call (513) 241-8313.