IC-DISC: AN OLD TAX PLANNING TECHNIQUE REBORN

REDUCE TAXES IN HALF ON EXPORT SALES

Rather then paying ordinary federal income tax of 35% and payroll taxes of 15.3% on your export sale profits, you can pay the capital gain rate of 15% now until 2011.

Dependent upon your State, you may also avoid State business income taxes.

What's the hitch?

Answer: Your export sales must meet the following general guidelines:

  1. Qualified receipts include products with USA content of 50% or more, services including engineers and architects and leases and rentals.
  2. Sale to a foreign country including adjacent countries of Canada and Mexico. Alternatively, an item constituting an isolated functional product exported within one year by your customer qualifies.
  3. Benefit is limited to 4% of export sales up to $50 million.

Annual Tax Benefit Example


 Target 4% of Export Sales
 Capital Gain Tax Rate 15%
 Ordinary Income Rate 35%
 IC-DISC Tax Savings 35%-15%=20%

$170,000
 $25,500
 $59,500
 $34,000

Red Tape?

Answer: There is, but we offer a turn key solution which includes:

  • Assessment of benefits to your business
  • Preparation of all paper work and legal documents for your advisers to review and approve
  • Creation of the DISC
  • Transaction monitoring and compliance
  • DISC Tax return preparation
  • Liquidation at the end of the benefit term

    • How does it work?

    Answer: The transactions basically creates a deductible dividend to shareholders utilizing a Domestic International Sale Corporation or DISC. Under a formal arrangement, the manufacturer pays a 4% sales commission to a federally tax exempt corporation designated as a DISC. The manufacturer is entitled to deducted the 4% commission but the income to the DISC is exempt. The DISC in turn declares a dividend to its shareholders who pay federal income tax on those qualified dividends at the current capital gain tax rate of 15%. Certain year end ratios of assets must be maintained by the DISC, a formal commission agreement is followed, and strict adherance to payment and dividends timing.  This necessitates careful monitoring program which is the service we provide.

    To read more please download our power point presentation, read our published article or email us for more information.

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