By Scott Estill, J.D.
Not all tax tips are applicable to all taxpayers. Please consult with your tax adviser/professional to see if these tips may work for you.
Tip #14: Tax Increase in 2018 for Small Corporations and Just a Few Days to Plan!
The very recent passage of the Tax Cuts and Jobs Act has unfortunately increased the taxes of small C corporations. Many of the C corporations that I have worked with in the past fall into this category, especially for start-up businesses, non-full-time businesses, or holding companies, to name a few. In 2017, a C corporation will pay a flat tax of 15% on the first $50,000 of taxable income. Beginning in 2018, this tax rate will rise to 21%. Keep in mind that if you have a corporation, it is a C corporation unless you have elected to have it taxed as a Subchapter S corporation. Thus, a C corporation with exactly $50,000 of taxable income would pay taxes of $10,500 in 2018 instead of $7,500 in 2017 on the same amount of income. This tax increase of $3,000 can be avoided to some extent by accelerating as much income into 2017 as is feasible. While this is usually the opposite tax strategy that we would employ at this time of the year, the difference of 6% in the tax rates makes this something to consider.
This tax increase for small C corporations has not generally been reported because the corporate income tax rate currently (in 2017) has the highest bracket of 35%. This top bracket is now a flat 21% tax rate for any taxable income in 2018 or later. While this is good news for any C corporation that has more than $50,000 of taxable income, such is not the case for smaller companies.
Larger businesses that are not currently taxed as a C corporation (such as an S corporation, most LLCs, General, and Limited Partnerships, sole proprietorship, etc.) may want to consider converting their business entity to a C corporation in 2018. There are special rules that apply to personal service corporations (such as for accountants, doctors, and lawyers, etc.) and also many changes to flow-through entities, which I will discuss in a separate article due to the overwhelming (at times) complexity of the new tax laws.
Prior Tax Tips for 2017:
Tip #1: Defer income and accelerate tax deductions.
To view: https://www.linkedin.com/pulse/2017-tax-planning-tip-1-scott-estill/
Tip #2: Watch any Roth IRA Conversions in 2017
To view: https://www.linkedin.com/pulse/2017-tax-planning-tip-2-roth-ira-scott-estill/
Tip #3: Preserve your State and Local Income Tax Deductions
To view: https://www.linkedin.com/pulse/tip-3-preserve-state-local-income-tax-deductions-2017-scott-estill/
Tip #4: Businesses: Buy Equipment in 2017 rather than 2018!
To view: https://www.linkedin.com/pulse/tax-tip-4-businesses-buy-equipment-late-2017-rather-than-estill/
Tip #5: Use a credit card in 2017 to preserve tax deductions
To view: https://www.linkedin.com/pulse/tax-tip-5-use-credit-card-2017-preserve-deductions-scott-estill/
Tip #6: Consider the Alternative Minimum Tax (AMT) and how to plan now to reduce or avoid for 2017.
To view: https://www.linkedin.com/pulse/tax-tip-6-beware-amt-trap-scott-estill/
To view a complete listing of tips by Scott Estill click HERE.