Are There Different IC-Disc Options?

Home » IC-DISC: The Basics
Posted on 6th October 2018 by admin

While we’ve introduced you to the basic history of the IC-DISC and how the program is utilized to help exporters maximize their potential income, we’ve really just started digging into everything there is to know about the program.

Are there different IC-DISC options for you to choose from? With Export Advisors, there are. We’ll walk you through our three IC-DISC options, designed to let you decide which works best for your business.

Basic, Premier, Or Concierge: You Decide

Because of the complexity of the DISC, it’s impossible for us to state definitively in a blog post what option would be right for you.

If you see an option listed that looks like the choice you would make, feel free to contact us to check out our quick and easy Potential Savings Calculator over here on our qualification page. You’ll be able to get a look at your potential savings when you utilize this financial incentive for exporters, and it’ll give you a good idea of where we’ll get started when you contact us.

Export Advisors offers three different options when it comes to the IC-DISC, so you’re in control of setup implementation, and continued maintenance, right at your comfort level:

  • Option 1: Basic IC-DISC. This choice tends to work best for business owners looking for a low-cost solution. The downside is that the business owner maintains responsibility for managing the IC-DISC, which takes time and focus away from the business itself.
  • Option 2: Premium IC-DISC: For business owners who don’t have the time or inclination to totally manage the DISC program on their own, Option 2 involves outsourcing the IC-DISC management for a fixed annual fee.
  • Option 3: Concierge IC-DISC: This is our most popular option, because it’s totally turn-key. Management of the IC-DISC is outsourced, financial risks are minimized, and the net tax savings are maximized to the utmost of what the program offers.

As you can see, these three options let you essentially customize your IC-DISC implementation.

The Concierge option may cost more, but it comes with the added benefit of involving minimal effort on your part, as we maintain the management and the details for you. The other two options are perfect for business owners still concerned about the IC-DISC or who like to be heavily involved in the management process.

Already Have an Existing IC-DISC?

Even if you’re a current client utilizing a Basic or Premier option, you can always contact us to speak about upgrading to Concierge as your business grows.

We’re able to scale your IC-DISC program to grow alongside you, and our unique fee structure ensures that you know everything about the cost of your IC-DISC before the program is implemented and operating.

If you already have an existing IC-DISC that is not managed by a firm that focuses exclusively on the program, you may not be receiving the full benefits you are entitled to. In that case, our free ebook may help point you in the right direction.

The Four Biggest (And Likely Unknown) Dangers of the IC-DISC walks you through potential risks of already-existing IC-DISC programs and tells you what steps you can take to minimize risk and maximize after-tax savings.

When You Need an IC-DISC Provider, We’re Here

Located in Houston, Texas, Export Advisors is one of the premier IC-DISC providers for United States exporters, and one of very few nationwide who focus exclusively on the program.

Our experience and expertise is top-notch, and we’re happy to partner with you to ensure that your IC-DISC works for you. Reach us by phone at (832) 654-9889 or contact us online at any time to get started.

 

What IS The IC-DISC, Anyway?

Home » IC-DISC: The Basics
Posted on 6th October 2018 by admin

When discussing the IC-DISC and why it’s a great option for members of the export industry looking to maximize their potential tax savings, we find that the best place to start is by explaining just what the IC-DISC is and how it came to exist in the first place.

In this short introductory post, we’ll focus on the bare bones essentials and basic history of the IC-DISC.

The IC-DISC

IC-DISC is an acronym that stands for Interest Charge Domestic International Sales Corporation. Often, it’s just called a “DISC” for short.

The program began in 1971, when the United States Congress voted to subsidize exports of U.S.-made goods by utilizing income tax law. In a complex arrangement, Congress created the DISC.

Lower Income Tax Rates, Higher Tax Savings

A DISC is a U.S corporation — a business entity with no actual substance that receives tax benefits.

While it is considered a corporation for tax purposes, a DISC is largely a symbolic creation. When properly structured, a DISC has no activities except in certain documentation, and has no activities not related to the export of certain qualifying goods.

So How Can You Save With the IC-DISC?

The IC-DISC is a tax-exempt corporation. Income that goes through the DISC is not subject to Federal income tax — instead, it is taxed at the lower, dividend rate when the income is distributed to shareholders.

The current dividend tax rates within the United States are significantly lower than the Federal income tax, and the difference between dividend tax rates and ordinary tax rates is where you’ll find your savings.

When properly utilized, the IC-DISC program allows exporters to maximize their income by taxing a percentage of it at a lower rate.

Interested in Seeing If Your Business Qualifies?

If you’re an exporter or shareholder of an export company looking to increase your after-tax income by utilizing financial incentives for exporters, Export Advisors is the company to call.

One of the foremost IC-DISC providers, we’re based out of Houston, Texas, right in the heart of the U.S. export industry, and we’re happy to help you with creation and implementation of an IC-DISC. We offer years of experience, a deep understanding of the export industry, and a unique financing structure that allows you to truly make the most of your IC-DISC. Give us a call at (832) 413-5401 or contact us online at any time to learn if you qualify or to get started.

 

Why Don’t More Business Owners Use the IC-DISC Program?

Home » IC-DISC: The Basics
Posted on 6th October 2018 by admin

In our previous posts, we’ve walked you through the details of the IC-DISC program, a financial incentive for exporters, as well as the program’s history and the different options available. After reading our blog posts, you may be wondering why more business owners aren’t taking advantage of the IC-DISC program.

The answer is a simple one.

IC-DISC Under the Radar

The reason that more export industry business owners don’t utilize the IC-DISC program?

Basically, a simple lack of information. While sometimes exporters aren’t aware of the program, other times a business owner may not realize that aspects of their business qualify as “exports” under the law!

Take a look at this case study of one of our clients, which is a good example of qualifying business owners who simply weren’t aware that what they were doing counted as exporting:

A banker in Houston, TX referred us to one of their customers, believing that the customer in question might benefit from the IC-DISC program. When the IC-DISC was suggested to him, the customer replied, “This sounds great, but we don’t export. We only have one location here in Houston and none of our customers are outside of the United States.”

After working with the client to take a more in-depth look at the inner workings of their company, we pinpointed two important details:

  1. Nearly half of their sales went to three Fortune 500 companies who maintained operations in Houston.
  2. A significant portion of the company’s products that were sold to those Fortune 500 companies ultimately ended up outside of the United States.

Upon further research and analysis, the customer was shown that nearly a quarter of their total sales qualified as export sales, thanks to these indirect exports that went through their three large customers.

Download the full case study to learn more about this client and find out how the IC-DISC lowered their tax rate and saved them thousands of dollars per year.

Discover If You Qualify for the IC-DISC With Export Advisors

Export Advisors, based out of Houston, Texas, is one of the premier IC-DISC providers in the United States. Even if you’re not an exporter, you may find that your business involves a qualifying amount of exports that allows you to maximize your after-tax income by using the IC-DISC program.

Learn more about qualifying for the DISC here, or contact us either at (832) 654-9889 or online to take the next step to become a client.

 

the IC-DISC Is an Exporter’s Dream Come True

Home » IC-DISC: The Basics
Posted on 6th October 2018 by admin

The technology that fuels our economy continues to change, with increased efficiencies allowing for exporters to work in a truly global marketplace.

While this has been a positive as a whole, it’s also led to serious competitiveness in the industry. Maintaining a successful business in the export industry takes some serious grit and determination, and many exporters find themselves wishing there was some sort of incentive to keep up the hard work and help their business grow.

With the IC-DISC, the federal government has put together a program that’s really an exporter’s dream come true.

Are You Making the Most of Your After-Tax Income?

The IC-DISC is a little bit of an open secret, with many exporters not even realizing they qualify for the program in the first place… and some business owners don’t even realize their business transactions count as exports under the program!

The IC-DISC is a unique tax program designed to encourage exporters to grow their businesses here in the United States. You can learn the ins and outs of the DISC and how it increases your after-tax income by reading this earlier blog post of ours.

We believe in the IC-DISC’s ability to help exporters grow. We’ve even put together a Potential Savings Calculator to help you see just how much your could save by utilizing the program!

Export Advisors Does the Hard Work For You

The IC-DISC only really has one downside. It requires certain maintenance and actions to be undertaken annually to ensure your DISC remains in a Qualified status.

There are certain risks to implementing an IC-DISC without expert help, and it’s our mission to work with exporters, CPA firms, and others to implement and maintain their IC-DISC.

We’ll even go to bat for you if the IRS should choose to audit, defending your IC-DISC at no further cost to you.

How Can You Know if You’re Qualified for the IC-DISC?

It’s as simple as answering a couple of questions. First, are you either a member of the export industry, or the owner or operator of a business whose transactions would qualify as exports? Secondly, head over to our Do I Qualify? page and fill out the Potential Savings Calculator.

Once you see your result and realize how much you could potentially save, the IC-DISC may seem like just the financial incentive you’ve been waiting for.

Get started with the IC-DISC by contacting us online or giving us a call at (832) 654-9889 today.

 

 

IC-DISC Maximization – Not All Calculations are Created Equal

Home » IC-DISC: The Basics
Posted on 6th October 2018 by admin

If you have not fully maximized your IC-DISC commission deduction, you could be leaving significant tax savings on the table that you are entitled to. Maximizing the IC-DISC commission is usually synonymous with performing a Transaction by Transaction (TxT) calculation.

What is a TxT calculation and are all TxTs the same? As you can likely guess from the title of this article, the resounding answer is “No.” We’ve performed thousands of TxT calculations over the last 20+ years, and have come to realize that TxT means different things to different people.

We also realize that if you are not performing a true TxT, you are likely either leaving a lot of cash on the table or you are taking too much IRS audit risk, both of which are bad for business. The following is our view of a true TxT and why it’s important.

Let’s start with the most obvious first. A computation completed in Microsoft Excel is not a true TxT calculation. Microsoft Excel is a spreadsheet, and as a spreadsheet, it is simply not capable of running all of the permutations required of a true TxT calculation.

A true TxT computation occurs when “cleansed and reconciled” transactional data is run through a powerful algorithm. The “cleansing and reconciliation” is usually completed in a database such as a Microsoft SQL Server. The algorithm determines the maximum allowable commission by calculating every allowable calculation combination and selecting the best option by crawling through the results. Options tested include:

  • A commission calculation on each transaction using the Overall Profit Percentages at all levels of the product hierarchy
  • A calculation of the commission at all grouping levels, i.e. all products, all product lines, etc.
  • A loss optimization is performed, which excludes certain transactions from product groups. This is typically done to maximize the 4 percent of either sales method where taxable income is a limit, or a marginal costing method where marginal cost taxable income is a limit
  • An algorithm that crawls through every permutation to determine the maximum commission allowed under the law
  • Detailed reports to support the commission as calculated in case of an IRS audit
  • Form 1120 IC-DISC Schedule Ps are generated as an attachment to Form 1120 IC-DISC

The software algorithm of a true TxT typically results in a supportable commission calculation of 30 percent, or more, than Microsoft Excel.

If a provider is using Microsoft Excel AND getting a result similar to a database software algorithm, I’d be extremely nervous, because that probably means that they are being overly aggressive somewhere else in the computation. The most likely cause is an extremely aggressive and unsustainable expense allocation and apportionment, but there are other areas where they could be “cheating.” Other aspects of a true TxT include:

  1. The source data is a single line item on an invoice. The sum of all of the invoice line items totals very close to sales and cost of goods sold. The valid TxT data includes not only export sales, but also domestic sales. Some of the IC-DISC pricing methods rely on an average profit which, to be calculated properly, requires the inclusion of all sales.
  2. Using software or a database, the source data is cleansed of credit memos, invoice adjustments, etc. If data is not cleansed of “bad transactions” you often get a great answer, but the IRS may deem the TxT computation invalid, resulting in a very difficult situation for the taxpayer.
  3. Adjustments are posted against the source data to reconcile it to tax sales and tax cost of goods sold. This is important. We see a lot of calculations where the TxT data is never reconciled to the tax return or the difference between cost of goods sold of the transactions and cost of goods sold on the tax return is simply plugged to domestic. Other cost of goods sold usually include variances, overhead, and other costs which relate to all sales and need to be allocated or apportioned as such. IC-DISC is a tax concept and it is a requirement that the data must reconcile to the related supplier’s tax return. Failure to do so may result in an embarrassing situation for the client upon IRS audit.
  4. Other deductions, interest expense, charitable contributions, and research and development (R&D) are allocated or apportioned under Treas. Regs. Section 861 between IC-DISC qualified and non-qualified sales, and then into the TxT data to reconcile the data to the tax return. The end result should be a profit and loss by invoice and line item, which reconciles to the tax return. Time and effort is needed to apportion these expenses between qualified export sales and non-qualified export sales. The expense allocation process is “part art and part science.” Rules exist that require certain apportionments of R&D and interest, while “any reasonable method” can be used to allocate and apportion other expenses. We often see situations where taxpayers get extremely aggressive with unreasonable methods in the allocation and apportionment of expenses, putting the validity of the computations in jeopardy.
  5. A standard industry or trade usage product hierarchy is created from the transactional data. At the most basic level, a product hierarchy contains two levels. The “product level” is typically a SKU, product number, or product description. The second level would then be “all products.” When creating a more detailed product hierarchy, you will often have products flowing into product lines, product lines flowing into product groups, etc.

BoNus:Pitfalls or Crazy Things We’ve Seen and Heard

  1. Taxable income of 1,000,000, domestic taxable income of -5,000,000, and export taxable income of 6,000,000. Clearly something isn’t adding up right.
  2. Lack of ability to support the numbers when requested. “Just trust us, this thing is legit.”
  3. Lack of ability to produce form 1120 IC-DISC Schedule Ps to support the calculations.
  4. Situations where a client provides sales and cost of goods sold data at the transactional level. The provider ignored the cost of goods sold as provided and reattached the cost of goods sold solely on a method which would yield a great answer. Sure, the answer is great, but on audit that calculation will blow up.
  5. “Well, Bob, the IC-DISC is the ‘wild, wild west,’ no one is ever going to look at this. You can do whatever you want.” That logic works until it doesn’t. When it doesn’t, the pain of those calculations will be many times greater than any benefit received from the original calculation. Most of us remember the pain of the housing crisis. A bad audit feels about the same.
  6. Similar to number one, 99 percent of selling, general, and administration are apportioned to domestic sales even though 50 percent of sales are export. Just because a firm is getting a great number, that doesn’t mean it will be sustainable under audit. You wouldn’t take an exemption for your pets on your individual return. This calculation is no different than doing exactly that, just in a different medium.

Conclusion

Don’t let greed overrule fear just because this is a niche area of the tax code. When doing an IC-DISC calculation, maximize the commission you are entitled to, but maximize it with a good TxT. Don’t maximize it by putting yourself and your company in jeopardy. Like anything else in life, you get what you pay for. A good TxT is not cheap, but a good TxT is the right combination of sustainable under audit, while simultaneously generating tremendous value for the client.

With tax reform moving forward in Washington, D.C., now is the opportune time to look at your open tax years to determine if a TxT, or a re-do of an existing TxT, makes sense for your company. Please contact us at dspray@exportadvisors.com for a complimentary consultation regarding your existing TxT or to explore TxT for the first time.