July 13, 2017
As the global market expands, many farmers are beginning to earn more of their income from sales directly to export markets.
Paul Neiffer, an accounting expert from CliftonLarsonAllen, joins us today to talk about tax considerations that can help keep more of that income in farmers’ pockets.
We asked him to explain what farmers should consider when forming a domestic international sales corporation, or IC-DISC.
He explained, “An IC-DISC is simply a seed corporation that is set up and allows that farmers on their foreign sales side – lets say you have a farmer who’s growing non-GMO soybeans, and it is being exported to Japan – it allows the farmer to convert some of that income from those sales to what is called “qualified dividend income,” which is usually taxed at about half the rate of ordinary income. This is a permanent tax savings, not a temporary tax savings, and we like those vehicles.”
When asked what the optimum time to do this would be he replied, “It works anytime that a farmer has approximately about a million dollars of foreign sales. If it is $500,000 it probably does not have enough generated to hit the fees and actually get a return on their money. So if you have a farmer or a farm operation that has about a million dollars or more of revenues that are going overseas, that really is the optimum farmer that would really get a good sized tax benefit from setting up an IC-DISC.”
We asked him to explain what the associated costs are with an IC-DISC.
“You are going to have the typical cost of setting up a corporation, probably a couple thousand [dollars] – maybe a little more or a little less, just depending on who you are using to set up a corporation. It has to make a special tax collection with the IRS, to be taxed as an IC-DISC, and then your annual fees, which is a fairly simple IC-DISC,” said Neiffer.
To learn more visit FarmCPAToday.com.