IC-DISC Presents Tax Savings Opportunity
Posted 1-19-2011 | By Gloria McDonnell | Download Article
Now is the time to determine if an IC-DISC (Interest Charge Domestic International Sales Corporation) is right for your company. The recent extension of the individual tax rates and the preferential tax rates relating to qualified dividends make this a good time to re-visit the tax savings available from an IC-DISC. The tax savings opportunity applies to closely held pass-through entities such as S-Corporations, Limited Liability Companies, Partnerships and certain C-Corporation arrangements.
To qualify for this benefit companies must have product sales shipped to customers outside the United States. The product must be manufactured in the United States either by the company or by someone else. Therefore, products you purchase and resell to foreign customers can qualify for the benefit. Similarly, sales to a U.S. customer who resells the product to a customer outside the U.S. without further sale, use, assembly or other processing within the U.S. may qualify as export sales for purposes of the IC-DISC.
Engineering and architectural firms also can benefit from an IC-DISC. Receipts for engineering and architectural services relating to construction projects located outside the U.S. may generate qualified export receipts for purposes of the IC-DISC tax savings.
Currently, companies can recognize a tax savings of 20% on the income generated by an IC-DISC. For example, a company with $5,000,000 of export sales and net income of $500,000 on these sales can save up to $50,000 per year.
The tax savings from an IC-DISC are not retroactive so the earlier you establish the IC-DISC the sooner you begin to realize the tax savings. Only export sales made after the organization of the IC-DISC qualify for the tax benefit.
For more information, please contact Gloria McDonnell, CPA, at gmcdonnell@hlbtr.com or 651-407-5829.