What is an IC-DISC?
IC-DISC is an acronym for Interest-Charge Domestic International Sales Corporation. IC-DISCs are a separate tax entity that allows tax benefits for companies that have export sales.
Who can benefit from the use of an IC-DISC?
Ultimately, any company who sells a product or service to an unrelated company located outside the United States. Most companies who could benefit greatly from an IC-DISC are unaware of it’s existence and do not utilize it as a legitimate tax savings strategy. IC-DISCs are available to U.S. manufacturers, producers, resellers, and exporters of goods &services that are produced domestically with an ultimate destination outside the United States.
What does an IC-DISC do?
An IC-DISC reduces a company’s income tax liability by converting export income to foreign parties into qualified dividend income. Tax laws allow for a company to use an IC-DISC to have the tax on 50% of its export income reduced by more than 50%.
How does it do this?
IC-DISCs can be quite complicated, but the basic process involves the exporter paying commissions to the IC-DISC. These commissions are tax deductible to the exporter, and the dividend payment of the commission income in the IC-DISC is taxed to the exporter’s shareholders/partners at the qualified dividend rate. In other words, a company who exports goods and services can pass their profits through an IC-DISC snf once the profits are passed through the company’s tax liability on the profits is significantly reduced.
The use of an IC-DISC as a tax strategy goes unused by many companies simply because they believe it is too good to be true, they are unaware of it, or because they are unaware that they qualify for its use. It’s in the best interest of the local economy that the companies who do qualify to use IC-DISCs are aware of it’s existence and it’s potential to help them develop and grow.