How can I use an IC-DISC to grow my business?
With an IC-DISC, after taxes you will make significantly more money on your sales. At the highest tax rate of 39.6%, for every $10,000 of pre-tax profit on export sales, you could be saving $1,580 in taxes with an IC-DISC and taking home $8,420 (based on the 20.3% tax rate) instead of $6,140 (based on the 39.6% tax rate) in after-tax dollars. So if you sharpen your pricing and make $900 in pre-tax profit on export sales, you will still be taking home $685.00 in after-tax dollars. The lower price allows for more export sales and more export after-tax profit per sale — a win-win scenario for you.
Why didn't my CPA tell me about an IC-DISC?
The tax code is very extensive so even exceptional CPA’s cannot be expected to know everything about it.
Is an IC-DISC a tax shelter?
No. An IC-DISC is part of the U.S. Tax Code and contained in Sections 992 through 996. The IC-DISC also files its own tax return which is an 1120 IC-DISC.
Is an IC-DISC a tax credit?
No! An IC-DISC is a separate shell company that allows for tax benefits as a result of the 23.8% qualified dividend tax rate.
Is the IC-DISC is an off-shore Tax Strategy?
No, an IC-DISC is a domestic U.S. corporation that allows for exporters to receive tax benefits.
Does it make sense for my small company to utilize an IC-DISC?
Definitely. Export IC-DISC has created a system to specifically help small businesses and mid-sized exporters obtain IC-DISC benefits at an affordable rate. Click here to calculate your estimated tax savings and back out our fees to determine the ultimate amount of the additional money that could go to your bottom line.
How difficult is it to establish and administer an IC-DISC?
Export IC-DISC has established a streamlined solution for our clients making it EXTREMELY easy to establish and administer an IC-DISC. In fact, we do the vast majority of the work required leaving you to only have to devote a few hours a year to your IC-DISC.
What if I sell to someone in the United States and they are the company that ultimately exports my products?
Selling products or qualified services to companies or customers within the United States that in-turn export the same do count towards Qualified Export Sales.
How do I receive tax benefits from an IC-DISC?
Tax benefits through an IC-DISC are mainly derived by allowing a significant portion of a taxpayer’s pre-tax export income being realized as Qualified Dividends taxed at 23.8% (20% Qualified Dividend tax rate plus 3.8% for the Obamacare add-on) as opposed to what can be an effective tax rate of up to 39.6%.
Does my IC-DISC have to be a fully functioning operating company?
No. In most cases an IC-DISC is set up as a shell company with no employees, facilities or true operations. The shell company is allowable under the IRS code.
The year already started; is it too late to set up an IC-DISC?
No. No matter what time of year it is, it is never too late to start an IC-DISC, just as it is never too late to reduce your taxes.
Do I have to manufacture the products I sell?
No. Distributors and third party sales companies can take advantage of the tax benefits under an IC-DISC.
What types of companies can benefit from an IC-DISC? (C-Corp, S-Corp, LLC, etc.)
Any profitable company can benefit from an IC-DISC regardless of the type of corporate structure it operates under.
What if I am using Ex-Im Bank; is that an issue?
No. Using Ex-Im Bank is actually further confirmation that you should have an IC-DISC since many of the export rules that apply to the Ex-Im Bank also apply to an IC-DISC.
What if I export to Canada and Mexico?
Exporting to Canada and Mexico are qualified sales for IC-DISC purposes.
What if I have a fiscal year-end; does that affect my IC-DISC?
No. The year-end of an operating company does not affect an IC-DISC, which has to have the same year end as the majority ownership of the IC-DISC.
I read something about 95% exporting required: What if 95% of my sales do not go overseas?
It does not matter what percentage of a company’s sales are qualified export sales. The 95% Test related to sales has to do with the sales that are considered for IC-DISC calculation purposes. Export IC-DISC has clients across the board with exports ranging from 3% to 100% of total sales at the operating company level.
I provide Engineering and Architecture services; can I benefit from an IC-DISC?
If the Engineering and/or Architecture services occur in the United States for projects taking place outside of the United States, then a company can take advantage of an IC-DISC.
Part of my company is owned by an ESOP; is that an issue?
An ESOP can own part of an IC-DISC; however, it will not receive benefits or penalties for its ownership in an IC-DISC. In the case where a company is not 100% owned by an ESOP the remaining shareholders can receive benefits with an IC-DISC. Therefore, even if a company is partly owned by an ESOP it still makes sense to have an IC-DISC.
We are a foreign owned company; can we use an IC-DISC?
It depends. A 100% foreign owned company cannot receive tax advantages under an IC-DISC. However, for companies with partial foreign ownership and partial U.S. ownership, the U.S. shareholders can take advantage of an IC-DISC. In this case because the foreign owners are not affected negatively, it still makes sense to have an IC-DISC.
My CPA looked into this a while ago and said I did not qualify; is it worth looking into again?
Definitely. Click here to use our IC-DISC Tax Savings Estimator or call us at 1-903-689-DISC.
My business is in agriculture; would I be able to benefit from an IC-DISC?
Yes. Growers, farmers, processors, suppliers, elevator operators, cooperatives and others associated with agriculture, whether crops or livestock, can take advantage of an IC-DISC. This holds true even if you are not the ultimate producer or exporter of goods and products.
What if I purchase goods from outside the United States and have them directly shipped to my client who is also outside of the United States; would this count towards my IC-DISC benefits?
No. Goods must originate or have a significant amount of their content value derived from the United States. See qualified exports.
When is the IC-DISC tax return due?
An IC-DISC return is due the 15th day of the 9th month after the year-end of the IC-DISC. For a calendar year-end IC-DISC the tax return is due September 15th.
What if I have two operating companies; do I need two IC-DISCs?
Not necessarily. It is possible to have two operating companies served by one IC-DISC; however, differences in ownership of the two companies may necessitate two separate IC-DISCs.
Are there any other tax programs in the United States specific for exporting?
There are no other tax programs that offer direct tax benefit as an IC-DISC does. There are other general tax programs; however, that exporters can take advantage of in addition to have an IC-DISC. Contact us for more information.
Does it matter if my company is on a cash basis or accrual basis?
No. With an IC-DISC it does not matter if your company is on a cash or accrual basis.
What if a portion of my products have content from outside the United States?
Products having content from outside the United States is fine as long as not more than 50% of the value of the product is derived from outside the United States. When several factors, including added components, packaging and labor, are factored into the United States content equation the 50% content rule is often adhered to.