Now that the holiday season has passed and with tax season underway, it’s time to explore whether your company can benefit from the R&D Tax Credit and the Interest Charge Domestic International Sales Corporation (IC-DISC) savings. The R&D Tax Credit is not an income tax deduction – it is a bottom-line, dollar-for-dollar credit against income taxes due (and in addition to the deductions you are already claiming). An IC-DISC is an entity that is not subject to the regular U.S. corporate income tax. U.S. exporting companies have the ability to create an IC-DISC and pay a commission for selling products internationally.
Know the Basics: R&D Tax Credit
Many companies in North Dakota are forgoing tens of thousands of dollars each year because they don’t realize that, due to the broad the definition of R&D, they are eligible for R&D Tax Credits.
How It Works:
The R&D Tax Credit is not an income tax deduction – it is a bottom-line, dollar-for-dollar credit against income taxes due (and in addition to the deductions you are already claiming!). The credit can result in a significant reduction of current federal and state tax liabilities and can potentially result in a cash refund. Additionally, the R&D Tax Credit is not a “use it or lose it” credit. Federal R&D Tax Credits can be carried forward for 20 years.
North Dakota has established the most aggressive R&D tax credits in the country to help foster innovation. This can mean significant savings for your organization, if you qualify. In addition, the North Dakota credit carries forward for 15 years and smaller companies in North Dakota can monetize and sell their unused North Dakota state R&D Tax Credits.
Resources:
- Black Line Group: http://blacklinegrp.com/
- Forbes Editorial – Changes in 2014: http://www.forbes.com/sites/deanzerbe/2014/06/02/surprise-change-to-r-d-tax-credit-rules-is-big-help-for-small-business/
- R&D Credit Coalition: http://investinamericasfuture.org/
- Bloomberg Business: http://www.bloomberg.com/small-business/the-rampd-tax-credit-explained-for-small-business-08162011.html
Know the Basics: IC-DISC
The Interest Charge Domestic International Sales Corporation (IC-DISC) provides a significant tax savings for qualifying U.S. exporters, which serves as a vehicle for export tax savings.
Who will benefit:
Taxpayers who sell products produced, grown, manufactured or extracted in the United States and exported out of the United States and desire to reduce their taxable income.
How it works:
An IC-DISC is an entity that is not subject to the regular U.S. corporate income tax. The exporting company creates an IC-DISC. The exporting company pays the IC-DISC a commission for selling its product internationally. The commission is deducted by the exporting company at its marginal tax rate, and the IC-DISC pays no tax on the commission. Shareholders of the IC-DISC pay income tax at the dividend rate which is currently between 0% and 20%.
Resources:
- Worldwide Trade Partners: http://wtpadvisors.com/tax-advisory/ic-disc