VIA TAX INCENTIVES FOR QUALIFYING US EXPORTERS –
Small to mid-sized companies are encouraged to increase their international business to help U.S. companies compete in the global marketplace. Numerous tax consequences as well as tax benefits of international business exist. The structure of your export activity is important to maximize tax benefits using an Interest Charge – Domestic International Sales Corporation (IC-DISC).
An IC-DISC is a domestic corporation that benefits small to medium, private exporters the most. It results in lower effective tax rates on foreign profits which ultimately increases cash flow. The IC-DISC can be traced back to the early 1970’s when the structure only provided a tax deferral opportunity. The popularity of the IC-DISC increased dramatically after the 2003 Bush tax cuts which lowered the tax rates on qualified dividends to 15%. Due to the gap between ordinary (35%) and qualified dividend tax rates (15%), the establishment of an IC-DISC is powerful enough to increase the after-tax margin on exports by ten percent. Even with the current 15% dividend tax rate facing an increase, the ordinary tax rates are expected to increase as well, allowing the IC-DISC structure to remain valuable. This is because the current administration provides the IC-DISC as a tax break to entice export of U.S . products and services. See our website for further detail on how an IC-DISC works.
Your CHORTEK tax advisor can walk you through the issues and opportunities of the global business environment and help implement the tax structure most beneficial for you.