2018 - Tax Cuts and Jobs Act - Summary of Corporation Changes

The following are the major changes wjocj have been introduced in the Tax Cuts and Jobs Act signed by President Trump on December 22, 2017, effective for the 2018 tax year:

Corporation Tax Rate Reduced to 21%

The graduated tax rate schedule for corporations has been eliminated for tax years ending after December 31, 2017, and a flat rate of 21% tax applies to all corporations, including personal service corporations.

Dividend Received Deduction

For tax years beginning after December 31, 2017, the 70-percent dividends-received deduction is reduced to 50 percent and the 80-percent dividends-received deduction is reduced to 65 percent.

Corporation Alternative Minimum Tax (AMT)

The AMT for corporations has been eliminated, and any unused minimum tax may be used to offset regular tax liability for any year.

Passthrough Deduction for Qualified Business Income

A deduction of 20% of domestic qualified business income is available to individuals with passthrough income from a partnership, S corporation or sole proprietorship.

There is a new limitation based on wages paid plus a capital element with income above a threshold amount.

This deduction is not available to businesses which:

  • provide services in the fields of accounting, actuarial science, athletics, brokerage services, consulting, financial services, health, law, or the performing arts; or
  • that involves the performance of services consisting of investing and investment management, trading, or dealing in securities, partnership interests, or commodities; or
  • whose principal asset is the reputation or skill of one or more of its employees or owner.

S Corporation Conversions to C Corporations

When an S corporation converts to a C corporation, any distributions for a one year period are treated as if they were S corporation distributions.  The corporation's accumulated adjustment account determines the tax effect of distributions when the corporation has earnings and profits.  Distributions from a terminated S corporation are treated as paid rom the accumulated adjustment account if made during the post termination transition period.

Section 179 Deduction

The section 179 deduction is increased to $1 Million, and the investment limitation has been increased to $2.5 million. 

This is a summary of changes in the Tax Cuts and Jobs Act affecting corporations.  For a summary of changes affecting individual returns, please click here.