Tax Article -Permanent U.S. Income Tax Savings for the Sale of Export Property

If you are a U.S. manufacturer, ship some of your products to foreign countries, and you would like to take advantage of permanent U.S income tax savings, consider establishing an Interest Charge Domestic International Sales Corporation (IC-DISC) for your international accounting.

The American Jobs Creation Act of 2004 (AJCA) was passed which repealed the Extraterritorial Income Exclusion (ETI). The ETI rules were designed to promote the export of U.S. manufactured products to foreign countries. These rules allowed a percentage of the income earned from the sale of qualified export property to be exempt from U.S. income tax. 

The AJCA reduced the benefits of ETI to 80% in 2005 and to 60% in 2006. In 2007, the benefits of ETI no longer exist. 

You do not have to lose the tax benefits relating to the export of your U.S. manufactured products. By using an IC-DISC, you can receive even greater tax benefits than by using the ETI.

The Domestic International Sales Corporation (DISC) was enacted into law with the Revenue Act of 1971 for eligible exports beginning on or after January 1, 1972. In 1984, the law was changed, making it an Interest Charge Domestic International Sales Corporation (IC-DISC) because of requests from the European Economic Community. In addition to the phase out of the ETI, the Jobs and Growth Tax Relief Reconciliation Act of 2003, reduced the dividend tax rate for individuals to 15%, for dividends received in taxable years after December 31, 2002.

If you would like to learn more about international accounting, other international tax services, and savings opportunities contact Feeley & Driscoll, via email here or call (888) 875-9770.

For example, assume a Subchapter S Manufacturing Corporation with the following facts:

If 25% of the Total Sales were made to customers in foreign countries, the permanent U.S. income tax savings from using an IC-DISC would be as follows:

Note that the permanent U.S. income tax savings beginning in 2007 is $400,000 per year! This could be even greater if your foreign sales continue to increase every year!

This benefit also applies to architectural and engineering services on foreign construction projects and to the sale of certain computer software.

You cannot take advantage of the IC-DISC rules until a new corporation is formed. However, this can be accomplished in a very short period of time. 

Learn about the Massachusetts Tax Amnesty and find out how our expertise in Accounting can add value to your business. Email us or call us at 1 (888) 875-9770

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