Tax Savings – International Exporters
JLK Rosenberger has extensive experience serving export companies across California and the coast leverage the benefits of the Interest Charged – Domestic International Sales Corporation (IC-DISC) model to create a more efficient tax structure. Our professionals work with small to medium size companies to create, administer and implement the IC-DISC.
Eligibility
Unfortunately, not every company meets the criteria to take the IC-DISC selection. The company must be private and organized as a S-Corp, partnership, LLC, or closely-held C-Corp. In addition, the company must also satisfy several other requirements including:
- A single class of stock with an aggregate minimum par value of $2,500;
- 95% of gross receipts involve goods manufactured in the U.S.;
- 95% of the assets of the IC-DISC is inventory for export;
- Separate records are maintained by the IC-DISC; and
- The IC-DISC is not a member of a foreign sales corporation.
Generally speaking, the following industries have taken advantage of IC-DISC:
- Manufacturers
- Distributors
- Software Companies
- Engineering/Architectural Firms – Working on Structures in Foreign Countries
IC-DISC Operation
The mechanics of how an IC DISC operates are somewhat complex. A summary level explanation of how the tax savings is realized by the shareholders is outlined below.
- SAMPLE Company forms a tax-exempt IC-DISC;
- SAMPLE Company pays a commission to the IC-DISC based upon a determined rate;
- SAMPLE Company deducts the commissions from its ordinary income taxed at 35%;
- The IC-DISC pays no tax on the commissions because it is tax-exempt;
- The IC-DISC distributes dividends to its shareholders which are taxed at the capital gains rate of 15%;
- The resulting tax savings are 20% of the commissions.
Take the Next Step
Establishing an IC-DISC is a complex process that delivers significant value to a select group of companies. Find out if you can benefit from this incentive structure by clicking here to contact us or feel free to reach out to the highlighted professionals. We look forward to hearing from you.