The new corporate tax rate was the headline change made by this new tax law. That rate is, of course, a flat 21% on all taxable income. Not all businesses will realize a tax rate benefit from the new tax law changes.
The prior rules taxed corporate net income at only 15% for the first $50,000, with higher graduated rates beyond that amount. So a corporation with a taxable income of exactly $50,000 would owe $7,500 under the old graduated rates and $10,500 under the new 21% flat tax rules. That’s a 40% tax increase.
Corporations with taxable net incomes under $90,385 will have a higher federal tax liability going forward under the new law, and corporations with net incomes over $90,385 will have a lower federal tax liability.
One thing to consider in finalizing your cooperative’s 2017 tax return is if it makes sense to let your co-op pay tax on some income at the current lower 15% rates. If your co-op has a goal of building up permanent capital this may be a good year to add to reserves.
Another significant consideration is the tax rate your members will pay on any patronage dividends. We have a separate memo on the taxability of patronage dividends. It is very important to think about the total picture of the co-op’s rate and the recipients’ rates.
Financial Statement Effect – Deferred Taxes
For co-ops with formal financial statements the deferred tax calculation will need to be adjusted for the new corporate rate of 21%. Depending on previous rate assumptions this might result in an increase or in a decrease of the deferred tax amounts.