Interest Charge DISC
Deductions for your dividends—U.S. Manufacturers and Distributors with overseas sales have a unique opportunity in which they can receive the equivalent of a tax deduction for dividends paid.
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How it works
A qualifying business forms a domestic corporation to facilitate its foreign sales. The new entity elects to be an Interest Charge DISC, which is exempt from federal (and often state) income taxes.
The qualifying business will pay a commission to the new entity for services rendered related to its foreign sales. The qualifying business will receive a federal deduction for this commission at a top rate of 35%.
As the Interest Charge DISC is a tax-exempt entity, it pays no tax on its commission income.
The twist
All commission income will be paid out immediately by the Interest Charge DISC to its shareholders, in the form of a Qualifying Dividend. The Interest Charge DISC will be owned by individuals.
Under current law, such Qualifying Dividends paid to individuals are taxed at a top federal income tax rate of 15%.
The savings
The qualifying business receives a federal tax deduction of
35% for the commission it pays, while the shareholders pick up that income,
at a top rate of 15%. This results in a permanent tax savings of 20%.
Find out more
To discuss the applicability of this tax service for your business, contact Bob Buetow at 612-376-4547.
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