Summary
After months of will-it-or-won’t-it suspense, on December 22, the biggest overhaul of the U.S. tax system since the Reagan administration was signed into law. Now that the holiday dust has settled, it’s time to shift into full gear and take tax reform by the horns.
The problem with New Year’s resolutions is that too often we bite off more than we can chew. Tax reform is no different. Companies should tackle the new tax law in three phases: determining and addressing the to-dos that require immediate attention, navigating the early stages of implementation, and finally, strategizing for the long-term.
To help you prioritize, we’ve put together a checklist of tax reform resolutions that will set you up for success in 2018 and beyond.
1. Bump tax reform to the top of your reading list. The new legislation includes over 1,000 pages of provisions and explanatory statements, most of which are already effective. The changes it introduces are significant, and yes, you will need to read it. Every company must parse through the new legislation to identify which provisions are most relevant and analyze whether the impact will be favorable or unfavorable to their business as it currently operates.
2. Whip your data into shape. Assessing the impact of tax reform requires a substantial amount of readily-available data. Companies need to immediately shift their focus from modeling the impact of tax reform to data collection and computations. Businesses with international operations will likely need more time to collect necessary data, as some of the information needed for the transition tax calculation may not be at their fingertips, and could date back to 1987.
3. Prioritize the most important changes. Focus on the areas that have the greatest impact and urgency. For most companies, the three main areas requiring immediate attention are potential changes to income tax accounting implications, deduction acceleration, and entity classification. Multinational companies will need to pay special attention to historic U.S. and foreign tax attributes, such as earnings and profits, net operating losses, and credits, among others, to determine tax reform impacts.
4. Don’t let the ball drop when it comes to Q4 reporting. Under existing accounting rules, companies are required to account for these legislative changes in their Q4 2017 financial statements, which will require recalculating deferred tax assets under the new corporate rate—a process that should be kicked off as soon as possible. You also may want to consider accelerating deductions into 2017 or delaying income into future years where it will be taxed at a lower rate.
5. Be flexible. Analyze how the new tax laws will impact your choice of entity and whether you need to consider changing entity type. If you’re thinking about changing the way your business is structured, whether to obtain favorable tax treatment or for other reasons, you’ll need to look closely at qualified business income, assets, products, and more, to determine the right move for your bottom line.
6. Think about the big picture. Tax reform isn’t just a big deal for the finance and accounting department; it’s potentially transformational for your entire business. Companies on the verge of major strategic business decisions such as mergers, acquisitions, or restructurings, all need to seriously examine these moves in light of tax reform.
7. Don’t go it alone. Tax reform of this magnitude is the biggest change we’ve seen in a generation. It will require intense focus to understand how the changes apply at a federal level and how to navigate the ripple effects this is likely to have on state taxation as well.
Take look at how this tax reform will impact you and your business:
