C Corps, Cap Gains, AMT, And Alimony

There’s lots for us to go through today, so let’s get into it…

C Corporation Income Tax Rate And NOL Rules

Currently, the tax rate on C Corps at the Federal Level is a flat 21%. Illinois charges 9.5%. Net Operating Losses or NOL Carrybacks are prohibited. But the carryforward period is now unlimited.

Capital Gains Tax Rates

There are two different sets of Cap Gains Tax Rates. First is for Short Term Cap Gains, or for an investment gain that was held for less than 12 months. All of these are taxed at regular income tax rates.

The tax rates on Long-Term Net Capital Gains and Qualified Dividends are generally unchanged. The breakpoints have been indexed for inflation.

Filing Status 0% 15% 20%

MFJ $0 – $94,050 $94,051 – $583,750 Over $583,750
HOH 0 – 63,000 63,001 – 551,350 Over $551,350
MFS 0 – 47,025 47,026 – 291,850 Over $291,850
All other Individuals 0 – 47,025 47,026 – 518,900 Over $518,900
Estates and Trusts 0 – 3,150 3,151 – 15,450 Over $15,450

Capital Losses are first matched against their mate in each category. In other words Long-Term Capital Losses are first matched against Long-Term Capital Gains. The same is true of Short-Term Losses and Gains.

Once used up in their individual categories, the losses can then cross over and negate income in the other category.

Alternative Minimum Tax for 1040’s

Back in the 70’s, Congress did a study on who was paying the most income tax. They found that upper-income individuals were paying less income tax, as a percentage of income, then their middle-class counterparts. As such, they then created the Alternative Minimum Tax.

This is nothing more than a surtax. The computer does your return, see’s how much tax you are paying, and if applicable, will just add on additional tax because you aren’t paying enough.

In tax circles this is what’s known as the “Bad Tax.” It’s a simple fact of life and there’s nothing that anyone can do about it.

For years within the TCJA, the AMT Exemption is now

$133,300 for MFJ and Surviving Spouse
$85,700 for Single and HOH
$66,650 for MFS

Alimony

The Tax Cuts and Jobs Act of 2017 permanently repealed the deduction for alimony and separate maintenance payments by the payor spouse and the inclusion in income by the recipient spouse for divorce or separation agreements executed after 12/31/2018.

That’s right. You heard it here first. Alimony is no longer deductible and the recipient doesn’t pay income tax on it either. Ridiculous.

Let me leave you with this…

The Consumer Price Index (CPI) which is one of the preferred Inflation Indicators was announced this morning, and the numbers weren’t great. Year over year consumer prices increased 2.6%.
Last month it had been 2.4%. Core prices which exclude the more volatile food and energy components were tracked at 3.3%.

This isn’t an Oh My God Moment, but it is troubling. The question becomes, what will the Fed do next?

If they again reduce interest rates at their meeting in December, they could be feeding the Inflation Dragon. If they don’t they could be feeding the Recession Monster.

Oh, what to do?

In the short run, we all need to be err on the side of caution. Horde your cash. Trim the fat. Be careful with any new projects. Interest rates probably aren’t going to come down to a more reasonable rate any time soon.

There’s going to be mini-blips like this along the way. Expect the unexpected. Be ready to do what entrepreneurs do best; to improvise, overcome adapt, and pivot.

When inflation is back under 2% and remains there for a time, we’ll all be able to breathe a sigh of relief. But we certainly aren’t quite there yet.

This is the eleventh column in my series to get my clients ready for their December Tax Planning Meetings. If you have any questions, please let me know.

We’re all going to get through this. Let’s get through it together.

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, Accounting and Tax Work, Tax Planning, or Tax Representation, you have but to ask. I’m here and I remain,

Schedule a Free Consultation, please click here.

Watch our Introduction Video here.

Sincerely yours,

Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300

www.SalarySolutions.net

www.AccountingSolutionsLtd.com

Note that the only professional services provided by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.