Taxpayers with deferred income taxes need to consider the financial reporting impact the Tax Cuts and Jobs Act (TCJA) carries. Here are some implementation items to consider that may affect your 2017 Financial Statements:
Flat rate 21%:
The federal effective rate should be adjusted to 21% on deferred tax calculations. The effect of this tax rate change is included in current year tax expense (or tax benefit).
Net Operating Losses (NOLs):
NOLs generated in the future will be subject to the 80% deductibility rule (which will affect deferred tax asset amounts resulting from NOLs generated in the future).
Interest expense limitation:
If you are subject to interest limitations on your income tax return, any carryforward of interest may become a deferred tax asset (similar to an NOL).
Built in Gains (BIGs):
If you have an S-Corporation with BIG taxes included in the deferred tax calculation, the rate should be reduced to 21%.
Accumulated Other Comprehensive Income (AOCI):
If you have income taxes as a part of gains in AOCI, there is specific guidance which is subject to change. Contact your advisor for further guidance.
Foreign taxes:
There are specific rules depending on the type of tax. This is a pretty complex area and not common for most privately held corporations. If you think you may have these issues, contact your advisor for further guidance.
Illustrative Disclosures Related to the TCJA:
Income tax expense (benefit) arising from adjustment of deferred tax assets/liabilities and income taxes receivable/payable for enacted changes in tax laws or rates
Nature and effect of significant matters impacting comparability of information for all periods presented, if not otherwise evident
For some entities where the TCJA was enacted after year-end but before the financial statements were issued, disclosure of event and either an estimate of impact, or a statement that an estimate cannot be made
If you have any questions or concerns about any part of the legislation and how it may affect your financial statement and tax planning for 2018, please don’t hesitate to contact your KatzAbosch representative; or contact us.
About KatzAbosch: Founded in 1969, KatzAbosch is one of the largest CPA and business consulting services in the Mid-Atlantic region. As an accounting firm, our mission is to provide the highest quality accounting, tax, financial and management consulting services to our regional clients. We understand the needs and challenges of our clients and we have made it our obligation to create, grow and protect asset value. KatzAbosch is consistently named a Best Accounting Firm to Work For in Accounting Today and has been named a Top 200 Accounting Firms in the Nation by Inside Public Accounting. Our firm is also ranked among the Top 15 Largest Accounting Firms in the Baltimore Area by the Baltimore Business Journal and a Top Workplace four times by The Baltimore Sun.
