The Foreign Earnings Intangible (FEI) income exception is a federal tax incentive for small business owners who manufacture goods in the United States. It is designed to promote domestic production by reducing the tax burden on qualifying businesses.
The FEI income exception allows businesses to deduct certain costs associated with the development, manufacturing, and marketing of intangibles that result in an export sale. Intangibles are property that is not physical in nature. Examples of intangibles that can qualify are patents and copyrights, engineering and design costs, and marketing and advertising expenses.
The amount of deductible expenses under the FEI income exception is limited to 50% of the business’s qualified export sales. Qualified export sales are sales of goods manufactured in the United States to customers outside the United States.
To qualify for the FEI income exception, businesses must meet the following requirements:
* Be a small business owner as defined by the Small Business Administration (SBA)
* Manufacture goods in the United States
* Have qualified export sales
* Deduct the expenses in the tax year in which the intangibles are developed or incurred
* Include an FEI statement with the business’s tax return
Benefits of the FEI Income Exception
There are several benefits to claiming the FEI income exception, including:
* Reduced tax burden for businesses that manufacture goods in the United States
* Increased cash flow by allowing businesses to deduct certain expenses sooner
* Enhanced competitiveness of U.S. businesses in the global marketplace
How to Claim the FEI Income Exception
To claim the FEI income exception, businesses must complete and submit Form 8815, Foreign Earnings Intangible (FEI) Income Exception With the IRS. The form is used to calculate the amount of deductible expenses under the exception and to include an FEI statement with the business’s tax return.
The FEI income exception is available to businesses that meet the requirements. It is a valuable tax incentive that can help businesses reduce their tax burden and increase their cash flow.