[US Corporation] Tax accounting update for an US Corporation taxpayer for 2017 and 2018

Tax accounting update for an US Corporation taxpayer for 2017 and 2018

※ Deadline of corporation income tax returns for 2017

For S-Corporation or Partnership

• Original due date: March 15th, 2018

• Due date by application/approval for automatic extension: September 17th, 2018

For C-Corporation

• Original due date: April 17th, 2018

• Due date by application/approval for automatic extension: October 15th, 2018

※ Corporation Tax revision by ‘Tax Cut and Job Act (TCJA)’ for 2018

1) Domestic Production Activities Deduction

For a C-Corporation, this deduction was repealed.

2) Executive compensation

For a C-Corporation, a publicly held corporation may not deduct compensation expenses in excess of $1,000,000 paid to the CEO and CFO as well as to the three other most highly compensated officers (covered employees). Previous exceptions based upon qualifying commissions or a performance-based plan of the company no longer apply.

3) General−Business Interest Expense

For a C-Corporation, all interest paid or accrued during the taxable year on indebtedness incurred for business purposes is limited to the sum of (1) business interest income; (2) 30 percent of the adjusted taxable income of the taxpayer for the taxable year (EBITDA through 2021, EBIT all years after); and (3) the floor plan financing interest of the taxpayer.

4) Business Meals and Entertainment

For a C-Corporation, business meals are 50% deductible to the corporation and business entertainment is no longer deductible. Food, beverages or meals at eating facility is 50% deductible through 2025 and nondeductible after 2025. The transportation for employee is repealed as exclusion for individual and deductible by employer.

5) Lobbying and Political Expenditures

For a C-Corporation, direct-type lobbying expenses in connection with local governmental lobbying are also not deductible.

6) Net Operating Losses (NOL)

For a C-Corporation, there are no carryback of NOLs but NOLs may be carried forward indefinitely. The NOL deduction will also be limited to 80% of taxable income. No charitable contribution deduction is allowed in calculating the NOL. The dividends received deduction is allowed to be deducted before calculating the NOL.

7) R&D Amortization

For a C-Corporation, R&D inside U.S.A is amortized in 5 years and R&D outside U.S.A does in 15 years, starting 2021.

8) Dividends Received Deduction (DRD)

For a C-Corporation, the percentage of DRD changed.

Percentage Ownership	2017	2018
0% to <20%	70%	50%
20% to <80%	80%	65%
80% or more	100%	100%

9) Bonus Depreciation

For a C-Corporation, the current law allows a 100% deduction for new or used property placed into service after September 27, 2017 and before January 1, 2023, and the deduction phases down after December 31, 2022 (80%, 60%, 40%, and 20%).

10) Section 179

For a C-Corporation, the current limitations for tax years beginning after December 31, 2017 allow maximum property expensing of $1,000,000, which phases out as property exceeds $2,500,000.

11) Businesses with average annual gross receipts of $25 million or less:

For a C-Corporation, are allowed to use cash basis, are exempt from UNICAP, or may use completed contract method.

12) Tax rate changes

For a C-Corporation, the federal tax rates changed.

Taxable Income	2017	2018
$ 1 – $ 50,000	15%	Flat rate 21%
$ 50,001 – $ 75,000	$ 7,500 + 25%
$ 75,001 – $ 100,000	$ 13,750 + 34%
$ 100,001 – $ 335,000	$ 22,250 + 39%
$ 335,001 – $10,000,000	$ 113,900 + 34%
$ 10,000,001 – $15,000,000	$ 3,400,000 + 35%
$ 15,000,001 – $18,333,333	$ 5,150,000 + 38%
$ 18,333,333 over	35%

* Moving from the worldwide tax system to the territorial tax system, effective January 1th, 2018, the USA is going to have Deemed Repatriation Toll Charge, Global Intangible Low Taxed Income(GILTI), Foreign Derived Intangible Income(FDII), and Base Erosion and Anti-abuse Tax(BEAT).

* Personal Service Corporations Tax Rate Change: Flat rate 21%

13) Corporate Alternative Minimum Tax (AMT)

For a C-Corporation, for tax years beginning after December 31, 2017, the corporate alternative minimum tax has been repealed. The AMT credit is refundable for any taxable year beginning after 2017 and before 2022 in an amount equal to 50 percent (100 percent in the case of taxable years beginning in 2021) of the excess of the minimum tax credit

14) Excess Business Losses

For an S-Corporation, the excess business loss of any non-C corporation taxpayer is limited to $250,000 ($500,000 for married filing jointly filers).

15) Section 199A Pass-Through Deduction

For an S-Corporation, its shareholders are eligible for the Section 199A pass-through deduction.

Note: This is for an US taxpayer’s reference and is not legally binding.