Tax Reform: What it Means For Businesses - C Corporations
September 19, 2018

This week we switch gears and begin our coverage of tax changes that impact businesses. Our first installment will cover significant changes affecting C corporations.

 

Tax Rates

Prior to 2018, a graduated tax rate structure applied to C corporations (15%, 25%, 34% and 35%). For tax years beginning after December 31, 2017, the graduated rate structure is eliminated and C corporation taxable income is taxed at a flat rate of 21%. The new law does not provide a special rate for personal service corporations (PSCs), thus these corporations are also taxed at 21%.

Although not specifically mentioned in the new law, it is presumed that fiscal year C corporations will be allowed to apply the tax proration rules of IRC Sec. 15.

 

Alternative Minimum Tax (AMT)

Similar to individual AMT, corporate AMT is a separate tax system that imposes a minimum level of federal tax. Under the new tax law, AMT for corporations has been completely repealed for tax years beginning after 2017.

Any unused minimum tax credit is refundable for tax years beginning in 2018 through 2021. The refundable credit amount is equal to 50 percent (100 percent for tax years beginning in 2021) of the excess of the minimum tax credit for the tax year, over the amount allowable for the year against regular tax liability.

 

Dividends Received Deduction (DRD)

The DRD allows a corporation to deduct a portion of dividends received from another taxable domestic corporation. For tax years beginning after December 31, 2017, the 70% DRD is reduced to 50% and the 80% DRD is reduced to 65%.

The DRD was reduced to reflect the lower corporate tax rate of 21%.

 

Prior Law (2017)

2018

Owns less than 20% of the

Corp paying out the dividend

70% Deduction

50% Deduction

Owns 20% or more of the

Corp paying out the dividend

80% Deduction

65% Deduction

 

Net Operating Losses (NOLs)

Corporate NOL rules have also changed under the new law. The new rules mirror those that impact individuals. Refer to our earlier article Tax Reform: What it Means For Individuals – Excess Business Losses and Net Operating Losses for details.

Have questions about how these changes will impact your corporation? Give BMM call.