The Internal Revenue Service issued a notice to corporate taxpayers to provide more information about the tax rates they will be paying as they transition to the new tax law.
The IRS noted that many U.S. corporations use a fiscal year end instead of a calendar year end for federal income tax reporting purposes. According to the notice, a corporation with a fiscal year that includes Jan. 1, 2018 will pay federal income tax using a blended tax rate and not the flat 21% tax rate under the TCJA that would generally apply to taxable years beginning after Dec. 31, 2017.
In order to calculate the federal income tax for the fiscal year that includes Jan. 1, 2018, these corporations will first calculate their tax for the entire fiscal year using the appropriate 2017 tax rate and then repeat the calculation using the new 21% tax rate. Finally, proportion each tax amount based on the number of days in the taxable year when the different rates were in effect. The sum of these two amounts is the corporation’s federal income tax for the fiscal year.
Confused? You’re not alone. This is but one of thousands of items covered in the transition to the new tax rules. Over 90% of businesses overpay taxes according to the US Inspector General. Don’t wait until tax time to start planning for how to build these new tax rules into your tax mitigation strategy. And if you don’t have a tax strategy as integral part of your business and wealth plan, contact our office today at 636-394-5524 and we’ll work with you to make sure you don’t pay more than required.
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