The Tax Cuts and Jobs Act signed in December 2017 introduces significant changes to the U.S. tax system. In addition to international tax reform and an overhaul of the Internal Revenue Code, the law has a big impact on financial reporting, particularly as it relates to Accounting Standards Codification Topic 740 Income Taxes. Are you ready for this new system?
Public accounting expert Samuel A. Monastra is: He has more than two decades’ worth of knowledge in the field, which he shares in his live webinar for Eli Financial, “Accounting for the Impact of the Tax Cuts and Jobs Act.” Monastra’s session will help you prepare income tax accruals for financial statements, account for big changes in income tax between the old and new laws, identify temporary and permanent timing differences, and account for deferred tax assets and liabilities.
Understand the Changes—and Look Out for More Reg Guidance
The federal tax plan shake-up changes the landscape both for taxpayers and those who service them. For those handling corporate taxes, there are plenty of changes to be aware of, noted accounting firm Baker Tilly:
- Corporate tax rate: down from 35 percent to 21 percent
- Corporate alternative minimum tax: gone as of Jan. 1, 2018
- Repealed deductions and tax credits: the domestic production deduction is gone as of Jan. 1, as are entertainment expenses and indirect foreign tax credits
- Cash method of accounting: these rules are loosened as of Jan. 1
- Corporate dividends received deduction: the 80 percent corporate dividends received deduction is down to 65 percent, and the 70 percent rate is down to 59 percent
- Net operating loss carryforwards: carryforwards are limited to 80 percent of taxable income beginning Jan. 1
- Business interest deduction: these are changed as of Jan. 1
The law also makes important changes to international tax rules, qualified assets, and gross income.
Get ready: Things changed quickly, partners from Steptoe & Johnson LLP warned, so accountants will need to be alert and flexible.
“Although reform of the US international tax system has been considered by Congress for years, the Act moved through Congress quickly—there was less than two months between the first introduction of the House of Representatives version of the Act and President Trump’s signature,” the writers said. “Given the speed of enactment, corrections and clarifications of numerous provisions are likely to occur through additional legislation and/or regulatory guidance.”
Industry Pros: Play On Your Strengths at Untangling Rules
Early statements by Trump that some Americans could file their taxes on a postcard under the new rules proved to be an exaggeration, but there is little doubt that the tax plan is changing the accounting profession: There are oodles of new rules to learn and games to play.
Overall, noted CNN, there should still be plenty of business for tax preparers.
“Any time you get any kind of rate differential for different sources of income, you warm the hearts of every tax planner everywhere,” Joe Thorndike, a tax historian with the non-profit research firm Tax Analysts, told CNN. “That’s great for them, because that’s going to create an enormous opportunity to reorganize.”
The U.S. tax code will always be challenging to learn, said Tom Gerke, president and CEO of H&R Block said in an earnings call with shareholders.
“It could be simpler, but there’s no scenario where it would be simple, the U.S. tax code,” he said. “Every time we get into one of these reform processes, we can’t resist adding to it as well.”
Whether you are a CFO or a CPA, Monastra said the time to get acquainted with the new rules is now.