Changes to Corporate Taxes Under the Tax Cuts and Jobs Act

In a post last week I touched on some of the implications of the new tax law on pass-through business entities, like LLCs, S Corporations, partnerships, and sole proprietorships. Noticeably absent from that list is C Corporations. C Corps are the most common entity structure for America’s largest companies, like Apple, General Electric, Walmart and Target. It would be foolish to think any tax overhaul headed by republicans would be to the detriment of these behemoths. So, here are a few of the major ways C corporations will benefit beginning in 2018.

Corporate Tax Rate

Prior to the new tax bill being signed into law corporations paid income taxes based on their total income, just like individuals with rates ranging from 15% to 38%. Under the new tax law, all corporations will pay a flat 21% regardless of how much or how little the corporation makes.

Corporate Alternative Minimum Tax

Prior to the new tax bill being signed into law, corporations were potentially liable for payment of Alternative Minimum Tax (AMT), similar to higher earning individuals. Under the new tax law, beginning in 2018 corporate AMT is repealed.

Repatriation Incentive

For decades, US companies have been stashing profits internationally without incurring any tax consequences at a domestic level. That’s because under previous law, those international profits were not subject to tax liability immediately, but rather only upon bringing those profits back to the United States. And, doing so, would incur a tax liability of 35%.  So, companies have been betting on being able to wait it out, so to speak in hopes that eventually that significant tax burden would be alleviated. Well, that time has come. Under the new tax law, domestic companies with profits abroad are given the ability to bring assets home to the US at an incentive tax rate of only 15.5% (only 8% on illiquid assets like equipment). For the country’s largest companies, that can be equal to billions of dollars in savings. In fact, just last week, Apple announced that it will repatriate its foreign cash holdings of more than $252 billion by paying a one time tax of $38 billion, so it seems the repatriation incentive is already achieving its intended effect.

There are numerous other incentives in the Tax Cuts and Jobs Act including the expansion of bonus depreciation, increasing the limit for Section 179 deductions, and easing the burden for other types of business entities wishing to convert to C corporations. All in all, tax reform will have a significant effect on taxes for the country’s largest corporations for the foreseeable future.

Michael F. Brennan is an attorney at The Virtual Attorney™ a virtual law office helping clients in Illinois, Wisconsin, and Minnesota with estate planning and small business legal needs. He can be reached at michael.brennan@mfblegal.com with questions or comments, or check out his website at www.thevirtualattorney.com.

The information contained herein is intended for informational purposes only and is not legal advice, nor is it intended to create an attorney-client relationship. For specific legal advice regarding a specific legal issue please contact me or another attorney for assistance.