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What businesses should know about post tax reform blended tax rates

Posted on February 7, 2019

Among the biggest headlines from last year’s tax reform legislation was the replacement of our former graduated corporate tax structure with a flat 21 percent corporate tax rate. As you are no doubt already aware, this new maximum tax rate for corporations went into effect on December 31, 2017.

If your business or corporation utilizes a fiscal year that includes January 1, 2018, you will pay federal income tax using what is called a blended tax rate.

In other words, your business will not use the flat 21 percent tax rate for your entire fiscal year, but will instead blend both pre and post Tax Cuts and Jobs Act rates.

Here are the steps your organization can take to calculate your blended tax rate:

  1. First calculate your business tax for the entire taxable year using the tax rates that were in effect prior to the Tax Cuts and Jobs Act.
  2. Next, calculate your tax using the new 21 percent rate.
  3. Proportion each tax amount based on the number of days in the taxable year when the different rates were in effect.
  4. Determine the sum of these two amounts, which is your corporation’s federal income tax for your fiscal year.

The blended rate applies to all fiscal year corporations whose fiscal year includes Jan. 1, 2018. Teipen Selanders Poynter & Ayres CPAs caution business leaders that fiscal year corporations that have already filed their federal income tax returns which do not reflect this blended rate should consider filing an amended return.

Need new forms or instructions? TSPA can help you track down the forms you need, as many tax forms and instructions have changed. Just call your TSPA CPA.

For a complete list of IRS provided forms and more information, go to 2017 Fiscal Tax Year Filers Must Use Blended Corporate Tax Rates page on IRS.gov.