Some Businesses Required to Use Blended Tax Rate for 2018

U.S. corporations that use a fiscal year end instead of a calendar year end for federal income taxes will need to use a blended tax rate this year.

Due to a provision in the recently enacted Tax Cuts and Jobs Act (TCJA), a corporation with a fiscal year that includes Jan. 1, 2018 will pay their federal income tax using a blended tax rate and not the flat 21 percent tax rate that is part of the new tax laws.

Corporations that use fiscal year ends should determine their federal income tax for fiscal years that include Jan. 1, 2018 by doing the following:

  1. Calculate the tax for the entire taxable year using the tax rates in effect prior to TCJA
  2. Calculate their tax using the new 21% rate
  3. Proportion each tax amount based on the number of days in the taxable year when the different rates were in effect. 
  4. The sum of these two amounts is the federal income tax amount for the fiscal year.

The blended rate applies to all fiscal year corporations whose fiscal year includes Jan. 1, 2018.  Fiscal year corporations that have already filed their federal income tax returns that do not reflect the blended rate may want to consider filing an amended return.

The federal sequester law remains in effect for the 2018 federal fiscal year. Corporations need to be aware of how this may affect their tax credits and refunds. Revised forms and instructions can be found on IRS.gov. Updates on the implementation of the Tax Cuts and Jobs Act can be found on the Tax Reform page of IRS.gov.

More questions? Contact the business tax experts at Carpenter, Evert and Associates. Call (952) 831-0085. Or – –

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