IC-DISC for Contractors with Export Revenue
Ordinary income at 37% becomes qualified dividends at 20%. The IC-DISC is obscure, powerful, and rarely used by contractors.
This is the most obscure strategy in the playbook — and for the right contractor, one of the most powerful. If any of your revenue involves property that's manufactured, produced, grown, or extracted in the US and sold for use outside the US, an IC-DISC can convert ordinary income (37% rate) into qualified dividends (20% rate).
How It Works
You create an IC-DISC — a special-purpose C-corporation that exists on paper. Your operating company pays the IC-DISC a commission (up to 50% of export profits or 4% of export gross receipts, whichever is greater). The commission is deductible to the operating company. The IC-DISC distributes the commission as qualified dividends to its shareholders.
Net effect: income that would have been taxed at 37% is now taxed at 20%. On $200K in qualifying export profits, the savings are roughly $34,000/year.
Which Contractors Qualify
Any contractor who: sells equipment or materials that leave the country, provides engineering or design services used in foreign construction, exports fabricated components, or subcontracts on projects with international elements. The definition of "export property" is broader than most people think.
This is niche but powerful for the right business. See the full tax strategy guide for context.
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