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:

Table of Contents

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.

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