Set Up an IC-DISC for Foreign Sales Resulting in Initial $32,000 Tax Savings

We assisted a client with setting up an IC-DISC (C Corporation) because of their substantial sales to foreign customers.  The manufacturing company (S Corporation) calculates a commission based on foreign sales and pays it to the IC-DISC.  This provided the S Corporation a deduction from ordinary income.  The IC-DISC turned around and paid a dividend to the S Corporation for the same amount, and the IC-Disc pays no tax.  The S Corporation reports dividend income taxed at 23.8% versus ordinary income taxed at 39.6%.  For this client, that was a tax savings $32,000 in the first year.