Save Taxes on Exporting

Let’s say you buy or manufacture stuff made in the old US of A and you sell it overseas to folks who will pay an arm and a leg for U.S. made stuff. If you took your plain old business and sold the stuff overseas, you’d pay taxes at your tax rate. If you’re an LLC, it would not only be taxable business income but also self-employment income taxable at a combine rate of 35% up to 50%. Well Uncle Sam wants to even out trade, and there is an entity known as an Interest Charge DISC. It sits between your business and your customer and gets a commission on sales equal to get this THE GREATER OF 4% of gross export sales or 50% of the net taxable export income. This is taxed at the qualified dividend rate of 20%. So, you save 4% to 15% on your taxes. What is even better is you can defer recognizing the income by merely paying interest on the taxes you would have paid at Treasury rates (currently about 1.5%). There are some limitations on these benefits, but for a small exporter, it might be worth the expense. But hold on before you go charging off to set one up there are expenses. Lawyers will have to draw up the documents needed to put the regime in place, that’s about $3,000-10,000 depending on business structures used and lawyers used. You’re going to need to hire accountants, because this is not something you want to try on your tax software. That will cost you as well. So assume that if you have export sales in the $200,000 and up range you will justify the costs of setting it up and the costs of compliance.

For a smaller business, this is a cheap way to save taxes on your export sales. Otherwise, you get into overseas corporations and non-domesticated income which doesn’t put money actually in your pocket and as a small or medium sized business, you want to put money actually into your pocket.