First income tax will be calculated based on the old rates and the new rate. Then, total tax will be allocated based on the number of days in each period, under the old rates and the new rate, to create a blended tax rate for that fiscal year end corporation.
The following is an example provided by the IRS for a June 30, 2018 year end C corporation:
Previously we may have made a blanket recommendation for spending more money in the final year of the higher rate (assuming you had taxable income above $90,400), but now additional planning may be required. If you are a corporation that has income in the lower bracket ranges, you still have some opportunity to take advantage of those lower brackets that we discussed in last week’s article, but the later your fiscal year end, the higher your blended rate will be. You may want to consider where your income needs to be at the end of your fiscal year in order to get the most advantageous blended rate.
If your corporation normally has taxable income over $90,400 and has a late fiscal year end (for example November 2018), you will be able to take advantage of the 21% tax rate for 11 months of your income. Keep in mind that this is a flat allocation, so moving income between months within in the tax year will not make any difference in your tax calculation. Projections of your blended tax rate at varying levels of taxable income based on your fiscal year end will be warranted in order to determine to which fiscal year to shift income, when possible.