Tax Reform 2018: Explained

There has been a lot of talk about the Tax Cuts and Jobs Act (TCJA) since it was signed into law. Most of the focus has been on how the new tax reform will impact tax planning and projections for individuals and companies. Financial reporting will also be affected in a major way. It’s important to consider whether you and your team are ready for the transition. Key highlights of the TCJA tax reform that will impact financial statements include: The reduction of the federal rate from 35 percent to 21 percent Limitations on the deductibility of interest Changes to the expensing of business assets Deemed repatriation of foreign earnings Alternative minimum tax repeal Limitations on net operating loss (NOL) carryforwards Repeal of the domestic production activities (DPAD) deduction Elimination of the deduction for business entertainment expenses Changes to the corporate dividends received deduction Breaking it down. These changes, as well as limitations on or the elimination of several other deductions and credits, mean big changes. They will have a significant impact on the calculation of deferred tax assets and liabilities and disclosures in C corporation financial statements. Many publicly traded companies announced substantial impacts due to these changes, but they aren’t the only ones affected. The new tax reform will affect public and private corporations of all sizes. Some corporations did not yet have enough information to make complete calculations for their 2017 deferred tax assets and liabilities. In that case, the SEC permitted the use of accounting estimates. However, the SEC bulletin permitting those estimates also stated that companies cannot take more than a year from the TCJA’s effective date to complete those calculations. Therefore, the clock is ticking. All companies must gather the data necessary for calculations and disclosures for financial statements for the year ending December 31, 2018. Recording the impact of the change in the tax law will take work. Accounting and tax software packages will need to be upgraded, as will existing processes and controls. Help may be needed from subject-matter experts to train employees or provide guidance on the scope of the project. Read More »

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