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©2012 CliftonLarsonAllen LLP     Tax Incentives for Exporters             John C. Berens, CPA              January 25, 201...
The Basic FormulaGross Receipts (Income)            $ 2,000,000Less    Deductions      Key to Savings   (1,500,000) (reduc...
IC-DISC (Interest Charge - Domestic International    Sales Corporation)3                        ©2012 CliftonLarsonAllen LLP
What is an IC-DISC?    • An “interest charge-domestic international sales      corporation”    • A U.S. corporation may el...
Qualified Export Receipts & Export Property    • “Export Property” is property:       • Manufacture, produced, grown, or e...
IC-DISC Typical Structure    IC-DISC Typical Structure                        • Company sells goods                 B     ...
Commission Calculation    • The commission calculation is the greater of:       • 4% of qualified export receipts       • ...
IC-DISC ExampleWithout IC-DISC                                  With IC-DISC                                              ...
IC-DISC – Key Points with Dividend Payout    • Export sales filed as commission income via 1120 IC-      DISC    • Reclass...
IC-DISC – Key Points with Income Deferral     • Annual deferral of federal income tax on up to       $10,000,000 of qualif...
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Tax incentives for exporters john beherns, clifton larsonallen - 25 january 2012

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Tax incentives for exporters john beherns, clifton larsonallen - 25 january 2012

  1. 1. ©2012 CliftonLarsonAllen LLP Tax Incentives for Exporters John C. Berens, CPA January 25, 2012 John Berens, CPA11 ©2012 CliftonLarsonAllen LLP
  2. 2. The Basic FormulaGross Receipts (Income) $ 2,000,000Less Deductions Key to Savings (1,500,000) (reduce taxable income) (e.g., Depreciation, COGS, Payroll, etc.)Total Taxable 500,000Income Tax Rate 35%Tax Due 175,000Tax Credits Key to Savings 150,000 ($ for $ savings)Tax Check to IRS $ 25,0002 ©2012 CliftonLarsonAllen LLP
  3. 3. IC-DISC (Interest Charge - Domestic International Sales Corporation)3 ©2012 CliftonLarsonAllen LLP
  4. 4. What is an IC-DISC? • An “interest charge-domestic international sales corporation” • A U.S. corporation may elect for federal income tax purposes to be treated as an IC-DISC by filing IRS Form 4876-A (Election to be Treated as an Interest Charge DISC) • An IC-DISC is not subject to federal income tax • An IC-DISC pays dividends to its shareholders4 ©2012 CliftonLarsonAllen LLP
  5. 5. Qualified Export Receipts & Export Property • “Export Property” is property: • Manufacture, produced, grown, or extracted in the U.S. by a person other than the DISC • Not more than 50% of the fair value of export property is attributable to materials imported into the U.S.5 ©2012 CliftonLarsonAllen LLP
  6. 6. IC-DISC Typical Structure IC-DISC Typical Structure • Company sells goods B • Pays a commission to the IC-DISC and deducts the amount of the commission A • DISC can loan commission money back to exporter, or • DISC pays a dividend to shareholders • Currently 15% tax rate6 ©2012 CliftonLarsonAllen LLP
  7. 7. Commission Calculation • The commission calculation is the greater of: • 4% of qualified export receipts • 50% of export taxable income from export sales • The commission cannot create a loss for the supplier7 ©2012 CliftonLarsonAllen LLP
  8. 8. IC-DISC ExampleWithout IC-DISC With IC-DISC Combined Exporter IC-DISC TotalForeign Trading Gross Receipts 10,000,000 Foreign Trading Gross Receipts 10,000,000Cost of Goods Sold (6,000,000) Cost of Goods Sold (6,000,000)Selling, General, and Admin (3,000,000) Selling, General, and Admin (3,000,000)Export Net Income 1,000,000 Export Net Income 1,000,000 1,000,000Tax Rate 35% IC-DISC (Greater of):Tax Paid 350,000 1) 50% of Export Net Income 500,000 2) 4% of Export Gross Receipts 400,000 IC-DISC Commission 500,000 IC-DISC Deduction (500,000) Taxable Income 500,000 500,000 Tax Rate 35% 15% Tax Paid 175,000 75,000 250,000 IC-DISC Net Tax Savings: $350,000 - $250,000 = $100,0008 ©2012 CliftonLarsonAllen LLP
  9. 9. IC-DISC – Key Points with Dividend Payout • Export sales filed as commission income via 1120 IC- DISC • Reclassifies export sales from ordinary income to qualified dividend – Reduces tax rate from 35% to 15% – $10M Exports generate minimum of $80K tax savings, sometimes much more • Paper corporation only – Customers need not know of existence9 ©2012 CliftonLarsonAllen LLP
  10. 10. IC-DISC – Key Points with Income Deferral • Annual deferral of federal income tax on up to $10,000,000 of qualified gross receipts • Minimum Deferral: • $10 million X 4% X 35%= $140,000 in tax • IC-DISC shareholder pays an interest charge to the IRS when DISC earnings are accumulated at the “Base Period T-Bill Rate”. For 2011 the rate is 0.22% or $308 on a deferral of $140,000 in taxes.10 ©2012 CliftonLarsonAllen LLP

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