Corporate income taxes are paid from business profit. And it’s no secret that companies do everything they can to legally reduce the numbers they have to pay. Most businesses used to take full advantage of tax deductions. A qualified business income (QBI) allows taxpayers to deduct up to 20% of their corporate income. The type of business, along with other factors, has a direct impact on establishing a taxpayer’s eligibility. 20% could also be deducted from combined real estate investments or PTP income. This deduction is accessible whether you itemize your deductions or you don’t.
S corporations, which make most of the US businesses, don’t pay corporate taxes directly. They pass all income and deductions to their shareholders, who then pay them as individual income taxes. The updates in 2017 brought in significant cuts for corporations. On account of the decrease from 35% to 21%, the popularity and the number of C corporations increased.
The 2017 laws allow corporations to offset up to 90% of their taxable income due to Net Operating Losses. Limitations apply, and taxpayers will have to carefully monitor their NOL. Another section includes a 50% bonus depreciation. In other words, the federal government grants businesses a deduction that equals half of the value of the approved property.
S-to-C corporation conversions are accompanied by two new rules. First of all, a year after the transition, corporate money is distributed into AAA and AE&P accounts, with only the latter being a taxable dividend. Secondly, if an S corporation must go from the cash method to the accrual method, the amount needed is calculated for six years.
Under the 2017 law, transportation benefits don’t count as deductible expenses unless they are mandatory for the safety of the employees. However, employers can deduct bicycle commuting and reimburse employees through their salaries.
The latest major corporate tax updates from 2017 were meant to increase the number of businesses and encourage corporate growth.