IC-DISCs: Still A Valuable Tax Savings Vehicle For Certain Export Companies
Since its inception in 1971 and subsequent modifications, the IC-DISC has had its benefits surge and diminish following the variation of tax rates over time. As it stands today, the IC-DISC remains a powerful tax savings tool for certain exporters. By utilizing an IC-DISC, a U.S.-based company can reduce its federal tax liability by converting its export sales income, which is taxable at ordinary income rates, into qualified dividends, taxed at capital gains rates. Generally, this creates an effective tax savings of 15-18 percent.
For many exporters, the true benefits of an IC-DISC are seen at around $2-3 million in exports. There are also several qualifiers that may disqualify some export sales from being attributable to a commission.
To be considered a “Qualified Export Sale,” the following must all be true:
- The property must be manufactured, produced, grown, or transformed substantially in the United States
- The property must be sold or consumed outside of the U.S.
- No less than 50.1 percent of the Fair Market Value of Property must be attributable to items not imported from abroad
The time of year following the April 15 deadline can be essential for clients and CPAs to explore tax planning for the upcoming tax year. If you are interested in learning more about a potential IC-DISC opportunity or would like to learn about our other International Services, do not hesitate to contact us.
Josh Riker, is a Consultant in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including preparing client calculations, international forms, IC-DISC tax returns, and transfer pricing documentation.