Can your businesses benefit from the IC-DISC? Probably!
3 types of businesses that potentially qualify for the IC-DISC tax benefit:
- A company that directly exports goods it manufactures. Example: Company X manufactures widgets in Wisconsin and ships to Canada. Note: What counts as a manufactured good is also broader than many people realize – it can include software, films and many agricultural products.
- A company provides architectural or engineering services that are conducted in the U.S. for a building/bridge built outside of the U.S. Example: A design architectural firm based in Los Angeles designs a building that is built in China.
- A company manufactures a good (or a component part of a good) that is included in a product that is exported. This is probably the largest missed opportunity for businesses when it comes to the IC-DISC. Example: Company A makes springs that are included in a snowmobile that is shipped to Finland.
So what is an IC-DISC and how does it work? Basically, a separate entity is created – the “Corporation” part of IC-DISC. The exporter (your operating company) pays commissions to the IC-DISC. The commissions are deductible to the exporter, and the deemed or actual dividend payment of the commission income in the IC-DISC is taxed to the exporter’s shareholders/partners at the long-term capital gain rate (ty15% rate (as opposed to being taxed as ordinary income – ex. 35% rate).
The result is that the exporter (your operating company) receives a deduction of 35%-39.6% on the commission payments made to the IC-DISC and only pays 0 – 20% tax rate on the income distributed from the IC-DISC. This is a federal savings of up to 39.6% at the federal level (in addition to the state tax savings).
Any company listed above that is located in the U.S.
Call Bryan McDonald at CPAMD, Ltd. today! 262-729-2840