Let's Talk About Business Taxes for the 2018 tax year






C CORPORATION INCOME TAX
  • §  Taxable income of a C corporation: taxed a flat rate of 21%


QUALIFIED PERSONAL SERVICE CORPORATION TAX
  • §  Taxable income of a qualified personal service corporation is no longer subject to tax at a flat rate of 35%, but is taxed at the regular corporate tax rate of 21%


ACCUMULATED EARNINGS TAX
  • §  20% of accumulated taxable income (in addition to regular corporate income tax)


PERSONAL HOLDING COMPANY TAX
  • §  20% penalty on undistributed personal holding company income.
  • §  No foreign tax credit allowed against personal holding company tax.


SELF-EMPLOYMENT TAX
  • §  Tax rate: 15.3% (12.4% OASDI tax plus 2.9% Medicare tax).
  • §  Surtax: 0.9% Medicare surtax on self-employment income in excess of $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately).
  • §  Wage base: $128,400 of self-employment income for OASDI (maximum OASDI tax of $15,921.60; no ceiling on Medicare tax).


SOCIAL SECURITY TAX
  • §  Tax rate: 7.65%, imposed on both employer and employee (6.2% OASDI tax plus 1.45% Medicare tax).
  • §  Wage base: $128,400 of wages for OASDI (maximum OASDI tax of $15,921.60; no ceiling on Medicare tax).


FEDERAL UNEMPLOYMENT TAX
  • §  Tax rate: Employers pay 6% on first $7,000 of wages paid to each employee.
  • §  Credit: Maximum amount of 5.4% for contributions paid to state unemployment insurance funds.


ESTIMATED TAX
  • §  Corporations owing $500 or more in income tax for the tax year must make estimated tax payments equaling the lesser of 100% of the prior-year or current-year tax liability. Large corporations must base the last three payments on the current-year tax liability.
  • §  Due on the 15th day of the fourth, sixth, ninth, and 12th months of the corporation’s tax year (April 15, June 15, Sept. 15, and Dec. 15 for calendar-year corporations).


CORPORATE ALTERNATIVE MINIMUM TAX (AMT)
  • §  Starting in 2018, the AMT no longer applies to corporations.


NONRESIDENT AND FOREIGN CORPORATION
  • §  Taxed on U.S.-source investment income at 30% (or lower under treaty).
  • §  Net income effectively connected with a U.S. trade or business taxed at regular U.S. tax rates.
  • §  Accumulated earnings tax of 20% of accumulated taxable income.
  • §  Branch profits tax of 30% on dividend equivalent amount.
  • §  4% tax on U.S.-source gross transportation income that is not effectively connected with a U.S. trade or business.


FILING DEADLINES
  • §  From 1120, U.S. Corporation Income Tax Return: April 15 for calendar-year corporations (extension to Oct. 15 available (Form 7004, Application for Automatic Extension of time to File Certain Business Income Tax, Information, and Other Returns)); 15th day of the fourth month following the close of the corporation’s tax year for fiscal years ending other than June 30 (six-month extension available); Sep. 15 for corporations with a June 30 fiscal year end (extension to April 15, 2020, available).
  • §  Form 1065, U.S. Return of Partnership Income: 15th day of the third month following the close of partnership’s tax year (six-month extension available (Form 7004)).
  • §  Form 1065, Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc.: Due to partners on or before the date the partnership files Form 1065.
  • §  Form 1120S, U.S. Income Tax Return for an S Corporation: 15th day of the third month following the close of the corporation’s tax year (six-month extension available (Form 7004)).
  • §  Form 1120S, Schedule K-1, Shareholder’s Share of Income, Deductions, Credits, etc.: Due to shareholders on or before the date the S corporation files Form 1120S.


STANDARD MILEAGE RATE
  • §  For business use of auto: 54.5 cents per mile (note that unreimbursed employee business expenses are no longer deductible as a miscellaneous itemized deduction).
  • §  Deemed depreciation: 25 cent per mile



GLOBAL INTANGIBLE LOW-TAXED INCOME
  • §  U.S. persons owning 10% or more of the stock (by vote or value) of a controlled foreign corporation must include in currently taxable income “global intangible low-taxed income” (GILTI), effective with the CFC’s first tax year beginning after Dec. 31, 2017, regardless of whether any amount is distributed to the shareholder.
  • §  Corporations may claim a deduction of 50% of GILTI.
  • §  U.S. persons owning 10% or more of the stock (by vote or value) of a “deferred foreign income corporation” must increase the foreign corporation’s Subpart F income for the last tax year of the foreign corporation that begins prior to Jan. 1, 2018, by an amount equal to its “accumulated post-1986 deferred foreign income” Taxpayers generally may elect to pay the tax resulting from the inclusion in eight annual installments.


FOREIGN DERIVED INTANGIBLE INCOME
  • §  Domestic corporation (other than regulated investment companies and real estate investment trusts) can deduct 37.5% of the corporation’s “foreign derived intangible income”.


BUSINESS INTEREST DEDUCTIONS
  • §  Business interest deductions are limited to the sum of (1) business interest income; (2) 30% of the taxpayer’s adjusted taxable income for the tax year.
  • §  Any disallowed business interest deduction can be carried forward indefinitely (with certain restriction for partnerships).


NET OPERATING LOSSES
  • §  Limited to 80% of taxable income.
  • §  Can be carried forward indefinitely; cannot be carried back (except for farming business).


Business auto depreciation limits
For vehicles placed in service during 2018

Year 1
Year 2
Year 3
Year 4-6
Passenger automobiles
$10,000
$16,000
$9,600
$5,760
Passenger automobiles with bonus depreciation
$18,000*
$16,000
$9,600
$5,760
Trucks and vans
$10,000
$16,000
$9,600
$5,760
Trucks and vans with bonus depreciation
$18,000*
$16,000
$9,600
$5,760
*$16,400 if acquired before Sept. 28, 2017





LIKE-KIND EXCHANGE
  • §  Limited to real property not primarily held for sale.


TRAVEL PER-DIEM RATES
  • §  High-low method: $284 per day ($68 for meals) through Sept. 30, $287 per day ($71 for meals) after Sept. 30, for high-cost localities; $191 per day (57 for meals) through Sept. 30, $195 per day ($60 for meals) after Sept. 30, for other localities in the continental United States (CONUS).
  • §  Transportation industry meals and incidentals: $63 per day through Sept. 30, $66 per day after Sept. 30 (CONUS); $68 per day through Sept. 30, $71 per day after Sept. 30 (outside CONUS)


SEC. 179 AND BONUS DEPRECIATION
  • §  Sec. 179 expense deduction: $1,000,000 with $2,500,000 threshold limit.
  • §  Bonus Depreciation: 100% of the cost of eligible property placed in service in 2018


DIVIDENDS-RECEIVED DEDUCTION
  • §  From a domestic corporation: 50%.
  • §  From a corporation owned 20% or more: 65%.
  • §  From a member of an affiliated group filing a separate return: 100%.
  • §  From a qualified 10%-owned foreign corporation: 50% of the U.S.-source portion; 100% of the foreign-source portion.


S CORPORATION
  • §  Built-in gains tax: Corporate tax rate times net recognized built-in gain (imposed during the recognition period on S corporation that were formerly C corporation).
  • §  Excess net passive income tax: Imposed if an S corporation has accumulated earnings and profits at the end of the tax year and its passive investment income exceeds 25% of the corporation’s gross receipts. Corporate tax rate times excess net passive income.
  • §  LIFO recapture amount: excess (if any) of the inventory amount under FIFO over the inventory amount under LIFO at the close of the S corporation’s last C corporation tax year must be included in the corporation’s gross income.


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