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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.
