IRS Announces Blended Corporate Tax Rate Calculations (as expected)
The IRS announced yesterday that regular corporations with a fiscal year ending in 2018 will apply the tax rates in effect for the number of days in 2017 under the old rate system and for the number of days in 2018 under the current flat 21% rate. We had previously provided a post indicating that this is how it should be done, but it took the IRS at least three months to tell everyone formally.
For example, assume a farm operation has a January 31, 2018 year-end. It makes exactly $50,000. It will pay a 15% tax rate on $50,000 times 15% times 334/365 days or $6,863 and pay 21% times 31/365 days or $892 for a total tax of $7,755. Under the old rates, the total tax would be $7,500. Under the new current tax rate, the total tax would be $10,500.
Many of the tax software providers would not process returns or at least warned preparers that they were not sure how to calculate the tax (although this was the law and should not have been that difficult).
I was discussing another matter with a preparer in SW Kansas yesterday and she had asked whether formal guidance had been received from the IRS. I told her no; hung up the phone; and found an email in my Inbox indicating the new guidance.
On another note, it appears that the new Farm Bill may provide some relief to farm operations structured as an LLC or S corporation. Under current rules, these entities only have one payment limit while a partnership or joint venture have unlimited limits. The new provision would allow LLCs and S corporations to not have limits applied at their level, but owners would still be subject to the limits. Most farm operations have been structured as LLCs to provide legal protection and if this provision goes through, this will be welcome relief for many current operations.
Finally, today was the last day of tax season. Yesterday was, as usual, the worst day of the year for me. Every client wanted to either call or come into the office with some question or issue. But I made it through and now my wife has to deal with me on a two week trip to South Africa. She has already warned me to be good.
The posts may be a little sporadic over the new couple of weeks.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Thanks for all of your information and knowledge that you bring to us. Have a relaxing vacation and try to unwind from the adrenaline rush of the tax season.