Exporters in Lincolnwood can Reduce Tax Bills with IC-DISC
For the purpose of developing local resources, enhancing GDP and alleviating the average living standard, US Government has introduced policies such as the IC-DISC. This provides better tax Incentives to small and mid-level manufacturers & exporters (forming a very major part of the economy), leading to reduced taxes, better annual savings, and better economic atmosphere. During 2013-14, adoption of such incentives by the companies in Illinois State cities including Chicago, Lincolnwood, and Springfield led to major export successes for the businesses, generating nearly $800 million in export sales for Illinois economy.
Lincolnwood, a small village in Illinois State of the US, is home to many small to mid-level businesses and thus, holds a strong potential for contributing to the nation’s economy by developing the local businesses through incentives such as IC-DISC. This case holds true for the rest of the American nation which is made-up of similar small local businesses.
So what is IC-DISC? How is it helping the development of small level businesses? How is it implemented? Who can gain from such a scheme? Why is it so important to introduce such incentives?
IC-DISC is a highly encouraged US tax incentive adopted by many exporters of Lincolnwood. IC-DISC allows exporters to save about 15% on net export income, leading to big tax savings and higher annual incomes. It also helps smaller businesses earn a better annual ‘after-tax’ income by receiving as commission, and converting a portion of its net export income equal to the greater than:
- 4% of the qualified export sales
- 50% of the net export income
Qualified dividends are generally taxed at 23.8% instead of the usual 39.6%, thereby reducing the tax rate by about 15%.
In other words, the taxable income is reduced by 50% with the qualified dividends being taxed at about 23.8%. So, this tremendous incentive reduces the tax on 50% of the export income by more than 50%.
Availing IC-DISC Incentive:
To avail IC-DISC incentive, a company must first establish a DISC approved by the IRS having a separate bank account, accounting records and must file US tax returns. A recent audit guide issued by the IRS helps companies stay on the right track regarding IC-DISC. The main requirements for a company to establish IC-DISC are:
- It must be US company/firm.
- Exports must be over 50% US content.
- It must maintain a minimum capitalization of $2500.
- It must satisfy Qualified Export Receipts test along with a Qualified Export Assets test.
The economic up-thrust of a nation depends heavily on its manufacturing industry and the export products, which are strengthened by supporting smaller local businesses. So, the IC-DISC incentive was introduced to help the smaller manufacturing industries blossom throughout the US.
The net of companies eligible to take advantage of IC-DISC is wider than one may think. The general categories include:
- Direct exports, where companies themselves export the products they manufacture. For example food items.
- The other category consists of services that are used to accomplish something in some foreign area. For instance, the agricultural insight of experts in the US used to treat the land in a foreign country.
- The 3rd and most neglected category consists of companies manufacturing products or providing services that are used as a part of some other exported product. For example electrical components used in making computers.
Taking Lincolnwood for instance; the place is home to thousands of small businesses with a wide range of exporters. Such a place holds the potential to undergo mass development by making use of incentives such as IC-DISC, as is being done by ‘Illinois Capacitors, Inc’ (a renowned electrical components manufacturer), along with many others.
It is quite clear to that how important local manufacturing industry is to the economic welfare of a nation. Incentives such as IC-DISC open doors to infinite possibilities. Thus, such incentives should be introduced more often.