On December 22, 2017, the country experienced the most sweeping tax legislation since the Tax Reform Act of 1986. The Tax Cuts and Jobs Act is a comprehensive tax overhaul dramatically changing the rules for tax years beginning before 2026.
“With such a vast change to the law of taxation, tax season is so much more than just ‘getting your taxes done,’” says Lisa Pileggi, CPA, director of tax strategies at Kreischer Miller. “Preparation is key, requiring you and your tax adviser to communicate early and often. This communication should include your adviser obtaining an understanding of your current tax situation in order to determine how the new law will affect you.”
Smart Business spoke with Pileggi about the new tax laws and how businesses and business owners can ensure they’re prepared to comply with them come tax time.
At a high level, what can we expect from the new tax law?
The Act includes the suspension of personal deductions, provides for an increase to the standard deduction and the child tax credit, imposes limitations to the state and local tax deduction, a temporary reduction to the medical expense threshold, as well as the imposition of new income tax rates and brackets, among many other changes. The legislation also provides a new deduction for non-corporate taxpayers with qualified business income from pass-through entities.
The legislation enacted by Congress favorably impacts businesses by reducing the corporate rate to 21 percent. Additionally, other provisions positively impacting businesses include the elimination of the alternative minimum tax and the expansion of capital expensing and depreciation. The new law also provides favorable reforms to small business owners.
How can businesses prepare for the changes?
Businesses and owners should talk with their tax adviser now to learn what impact the new laws might have. Some of the questions that should be answered include:
- Will converting to another entity type provide an overall tax benefit?
- Should the business examine ways in which to assist employees for unreimbursed business expenses?
- Have wage withholdings been examined and are adjustments needed before year-end?
- Have year-end gifts been evaluated to take advantage of the annual exclusion?
- Should the business evaluate a capital expenditure plan before year-end to maximize the enhanced accelerated depreciation?
- Has the tax basis in pass-through entities and total estimated business losses been reviewed to determine if losses will be deductible?
- Is there a need to review compensation amounts to analyze if adjustments are needed to minimize the effective tax rate?
What else should businesses and business owners do to be ready come tax time?
Identifying the technical aspects of tax season is undeniably crucial, however that is not the only area that demands consideration. The manner in which tax season is executed also deserves attention. Both tax practitioners and clients have expectations with regard to the manner in which the relationship is managed, as well as the timetable to which deliverables are completed. Conversations should take place to discuss the expectations of both parties and determine a mutually agreed upon timeline to hold one another accountable.
A tax adviser wants a client that communicates regularly and involves them in their day-to-day business when appropriate. A client wants an adviser that is proactive, creative and effective. When advisers and owners work collaboratively, these goals can be met.
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