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The Key behind a Transaction-by-Transaction IC-DISC Calculation



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By Tedder Schwarz, Guest Blogger

As we transition into the fourth quarter, we begin performing many IC-DISC projections for both existing and potential clients. These projections allow potential clients to determine whether or not they could benefit from establishing an IC-DISC; while existing clients are able to use these projections to manage year-end tax planning strategies. Preceding the projection calculations, a standard information request is sent out detailing the documents we require for the calculation – one of the most crucial pieces being sales detail.

In early discussions with potential clients, sales detail tends to be one of the most common hang-ups. Although the thought of collecting detailed sales information can seem like a tedious and overwhelming task, we generally see that companies already sufficiently track sales in a way that can be configured to run a transaction-by-transaction calculation.

The key behind a transaction-by-transaction calculation is in the detail provided by the client. The Code and Regulations allow us to modify the allocation of costs between domestic and export sales in an effort to either “maintain or gain” foreign market share. Thus, the general rule is the more detail we receive, the better we can model the cost allocations. Therefore, components of sales detail such as invoice number, product descriptions, product family, quantity, material cost, weight, square feet, and machine hours, provide more factors for us to model the calculation and maximize the commission expense.

Although accounting for sales can vary greatly from one company to the next, the sales detail the company currently maintains is always a great starting point. Often times this is plenty of information to run a transaction-by-transaction calculation. However, if you want to maximize your IC-DISC benefit, always remember: The more detail, the better!

SchwartzGuest blog from the professionals of McGuire Sponsel, an LBMC strategic partner delivering specialized tax and advisory solutions. They approach their work as trusted resources to CPAs, enhancing those important annuity relationships through innovative tax strategies.

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Tagged with: tax, IC-DISC