McGuire Sponsel Blog

When it comes to service, CPA firms look for any and all opportunities to help their clients save tax dollars. One example includes assisting exporting clients with incorporating and establishing an IC-DISC. However, after establishing the IC-DISC, what we often run into is finding a commission that is calculated using either the 4 percent qualified export receipts (QER) method or the 50 percent combined taxable income method on aggregate sales. These methods are known as safe harbor or simple calculations that can only generate a tax benefit in profitable years. Though many CPAs help clients calculate IC-DISC commissions with these methods, further value can be brought by maximizing commissions with the transaction-by-transaction (TxT) methodology.
 
At this point in the year, it may be wise to consider the additional benefit a TxT analysis can generate for clients that currently use a simple calculation. Such an analysis can result in a substantial amount of additional savings and avoid backlash from clients that learn from other firms that they have been missing out on this opportunity.
 
Recently, we ran into a worst case scenario with a regional CPA firm. The CPA firm was calculating the IC-DISC commission for their longtime client using a simple calculation. This calculation generated a commission expense of around $230,000. Another professional services firm soliciting their business came in and recalculated the same data using a TxT analysis and generated a commission of over $630,000. Not only did that event shed a negative light on the existing firm, but the additional tax savings was more than enough to justify paying the fees to the new firm who walked away with the engagement.
 
Although these numbers may seem unlikely, there have been many times when McGuire Sponsel has increased commissions by several multiple amounts by using a TxT analysis versus a simple calculation. As the end of the year quickly approaches, this is a great time to revisit these calculation methods and see if your client could benefit from further analysis.

Tedder Schwarz

Tedder Schwarz

Showing a strong commitment to clients, Tedder Schwarz, CPA, has an exceptional history working with clients to form IC-DISC entities. Joining the firm in 2008, he has a strong background in tax that allows him to increase export tax savings opportunities and maximize clients’ commissions.

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