U.S. Tax, International Tax, and Health Care Consulting and Compliance Experts
    International Taxation

    Foreign Tax Credit ("FTC")
    U.S. Corporations and individuals, other than U.S. Partnerships, are generally taxed on their worldwide income. In order to
    significantly alleviate the double taxation that results when a foreign country also subjects a U.S. company or individual to a
    type of income tax, typically territorial tax, the United States generally allows a credit (foreign tax credit or "FTC") for foreign
    income taxes paid or accrued.  However, the U.S. does not treat all types of income the same and there are specific
    regulations that help determine how both income and expenses must be calculated in determining the FTC.  Strategic FTC
    planning can play an important role in minimizing the global tax burden and create a competitive advantage to U.S. companies.
    Additionally, FTC planning should also be considered with other important tax initiatives, such as extraterritorial income
    exclusion deductions and domestic production activity deduction.  Taxpayers may optimize one of these two deductions at the
    expense of the foreign tax credit.  We can work with your organization to maximize the FTC while preserving all available
    deductions.  Please contact us to schedule a free consultation.

    Interest Charged - Domestic International Sales Corporation ("IC-DISC")
    With the recent repeal of ETI some exporters will realize an increase in their U.S. effective tax rate.  However, there is good
    news for small and midsized companies. Owner-managed exporting businesses can recoup, or even exceed, their tax savings
    by creating an interest charge-domestic international sales corporation ("IC-DISC"). The IC-DISC is not a tax shelter. The IC-
    DISC provides a permanent 20 percent tax savings for qualifying U.S. exporters. It also has a number of sophisticated features
    that can be tailored to help businesses meet objectives and goals.  

    The IC-DISC is a tax-exempt “paper” entity utilized as a tax-savings vehicle. It does not require corporate substance or form,
    office space, employees or tangible assets. It simply serves as a conduit for export tax savings.  Commissions, as determined
    by tax law, are paid by taxpayers to the IC-DISC.  Commissions paid to the IC-DISC are not subject to the 35 percent U.S. tax
    rate.  Since the IC-DISC is tax exempt, tax is paid only on distributions to shareholders. Individual and pass-through company
    shareholders pay income tax on dividends at the capital gains rate of 15 percent.  The net effect is the elimination of double
    taxation and a reduced corporate tax rate on the commission of 20%.   

    An important feature of the IC-DISC is that shareholders can be corporations, individuals or a combination of these.  The
    advantages of forming and IC-DISC are:

  • Permanent tax savings on global sales

  • Increased liquidity for shareholder of the business

  • Ability to leverage the cost of capital

  • Opportunities to create management incentives

  • Means to facilitate succession or estate planning

    Since the commission is determined based on calculations provided in the tax code maximum savings can be utilized by
    maximizing the allowable commission to the IC-DISC.  We have a strong history of maximizing these types of commissions and
    can help you with the formation and maximization of this benefit.  If you'd like more information please contact us to schedule a
    free consultation.

    Allocation and Apportionment of Expenses
    The determination of allowable expenses is the cornerstone in the determination and maximizing a variety of favorable tax
    incentives, mainly:

  • The Domestic Production Activity Deduction
  • The Foreign Tax Credit
  • Extraterritorial Income Exclusion
  • Interest Charged - Domestic International Sales Corporation

    Expense allocations covered under Internal Revenue Code §861-8 include special rules for research and development
    expenses, interest expense, selling and general administrative expenses.  If §861-8 principles are not followed correctly
    taxpayers could improperly determine a credit or deduction and potential expose their company to tax under payments, interest
    and penalties.  Conversely, taxpayers may over allocate or apportion expense to favorable activity and thus over pay taxes or
    limit the credits and deductions available to the company.  A solid and thorough understanding of these rules can lead to
    maximum tax savings.  We understand these rules and have consulted with numerous Fortune 500 companies on the proper
    treatment of expenses.  If you'd like more information please contact us to schedule a free consultation.

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