![]() ![]() If my customers find out about the IC-DISC, will they want some of the tax savings to be passed on through reduced prices? Consequently, the exporter continues to operate its business in the same manner as if the IC-DISC were nonexistent. When a sales agent sells a product, the exporting entity remains responsible to fulfill, invoice, and ship the order to its customers. The best way to describe the existence of an IC-DISC is to think of it as if it were an internal sales agent that works entirely on commissions. It is important to note that nothing changes for the exporting entity on a day-to-day basis. Will my customers know of the existence of an IC-DISC? The transfer of income to the IC-DISC creates a permanent tax rate arbitrage on the export sales commission of 15 to 18 percent. The commission is taxed at the qualified dividends rate only when distributed to shareholders as dividends. The IC-DISC commission payment reduces the exporter’s taxable income, thus reducing tax liability by the marginal tax rate of the commission amount. Depending on the owners’ personal income levels, federal capital gains tax rates could be as low as zero or 15% - or as high as 23.8% (the highest federal capital gains rate of 20% plus an additional 3.8% of net investment income tax). It distributes all of its profits as qualified dividends, and the owners pay tax on the dividends at more favorable capital gains tax rates. So, the operating company receives a deduction for the commission paid at ordinary tax rates and the IC-DISC pays no tax. 4% of gross receipts from sales of qualified export property.Ī properly executed IC-DISC isn’t taxable at the entity level.50% of net income on sales of qualified export property or.An IC-DISC is a separate entity that earns a “commission” on the operating company’s export sales based on the greater of
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