# Time for the Osterizer!

Time for the Osterizer!

It sounds like a joke, but it’s not: What do you get when you throw two corporate income tax rates into a blender? The answer, according to recent IRS guidance, is the corporate tax rate that fiscal year corporations pay for 2018.

Another reason to use a calendar year

If you use a calendar year as your company’s taxable year, everything would line up neatly—corporate taxes, payroll taxes, contributions into 401(k) plans, etc. But most corporations use a noncalendar fiscal year.

Prior to the Tax Cuts and Jobs Act, the top corporate tax rate was 35% and the rates were graduated, like the individual income tax rates. The TCJA flattens the corporate rate to 21%, for tax years beginning Jan. 1, 2018.

Wrinkle: For 2017 taxes, fiscal year corporations must take into account the old 2017 rates for the portion of their fiscal years that fell in 2017 and the new 21% rate for the portion that falls in this year. When you put it all together, it’s 10 steps:

• Calculate your tax for the entire taxable year using the rate that was in effect prior to the TCJA
• Calculate your tax using the 21% rate
• Apportion each tax amount based on the number of days in the taxable year when the different rates were in effect.

The sum of those two amounts is the corporation’s federal income tax for the fiscal year.

Example. ABC’s 2017 fiscal year ends on June 30, 2018. For its taxable year beginning July 1, 2017, and ending June 30, 2018, its taxable income is \$1 million.

2017 portion of ABC’s fiscal year:

 1. Taxable income (Line 30, Form 1120): \$1,000,000 2. Tax on Line 1 amount using pre-TCJA rates: \$340,000 3. Number of days in ABC’s taxable year before Jan. 1, 2018: 184 4. Multiply Line 2 by Line 3: \$62,560,000

2018 portion of ABC’s fiscal year:

 5. Tax on Line 1 amount × 21%: \$210,000 6. Number of days in the taxable year after Dec. 31, 2017: 181 7. Multiply Line 5 by Line 6: \$38,010,000

ABC’s blended rate:

 8. Divide Line 4 by total number of days in the taxable year: \$171,397 9. Divide Line 7 by total number of days in the taxable year: \$104,137 10. Add Line 8 and Line 9: \$275,534

ABC’s corporate tax for its taxable year ending June 30, 2018, is \$275,534.