Lurie has developed a process and tool that will allow businesses and their owners to understand how the 2018 tax legislation will impact their respective tax situations.
Details and Background
On December 22, 2017, President Trump signed into law a sweeping tax legislation (known as The Tax Cuts and Jobs Act).
Individual and pass-through (e.g., partnerships and S corporation) provisions are generally phased out in less than a decade.
- The tax cuts for C corporations are permanent changes to the Internal Revenue Code.
- The reduced tax rate of 21 percent, from 35 percent, may increase the popularity of corporations.
- The Act also contains a deduction of up to 20 percent of qualified business income (“QBI”) of pass-through entities, which will provide substantial benefits for taxpayers operating certain trades and businesses.
- The Act limits business interest deductions for certain taxpayers to 30% of adjusted taxable income.
- The Act allows for elimination of Sec. 263A utilization or deductibility of inventory purchases and allows the use of the cash basis method for small taxpayers.
- Net operating loss (NOL) utilization and timing has been modified.
- Timing of depreciation is accelerated under the bonus depreciation method.
These and other factors make the review of the 2018 tax legislation very important for taxpayers as they determine how to handle the following for their businesses:
- Changes in cash tax liabilities and impact on:
- 2018 quarterly estimates
- Return on investment
- Redemptions and succession planning
- Tax distribution rates
- Projection of short term and long term effective tax rates and planning including:
- Length of investment period and planned exit
- Allocations of income/ loss amongst partners
- Method of entity capitalization between debt and equity
- State and local structuring and deductibility of taxes
- International structuring and taxation
- Review of various accounting methods and periods
- Analysis of accounting methods and periods:
- Utilization of cash method for certain taxpayers
- Elimination of 263A for certain taxpayers
- Interplay between Sec. 179, 100% bonus and tangible property regulation rules
Lurie 2018 Tax Legislation Review Process for Business Entities
Lurie’s process is a thoughtful, phased approach intended to be a collaborative process with the business’ leadership and owners. Through this process, the Lurie review team will work closely with the Lurie tax compliance team and the client to ensure the most relevant and accurate information is uncovered and incorporated. This will yield the most beneficial results based on the unique characteristics of the business and its owners. The process includes three key phases summarized below:
Phase 1 | Initial Scoping
We review various tax and financial information to familiarize ourselves with the entity structure, partner/shareholder group, and refine the details of subsequent phases.
Phase 2 | Data Gathering & Fact Finding
We work with leadership and owners to better understand the operations, succession and exit plans, financial projections, short and long-term goals and other relevant details of the business.
Phase 3 | Detailed Analysis & Modeling
Based on the information obtained in phase 1 and 2, we will model the estimated tax impact to the business and owners of the 2018 tax legislation. We will determine:
- Cash tax impact
- Effective tax rate impact
- Optimal entity structure
- Whether the business should combine and/or separate existing entities
- Whether the business should utilize multiple entities with bifurcation of business/expense activities
Our deliverable(s) for this phase will typically include a comprehensive Excel workbook detailing our assumptions and summary of findings. We can also prepare a memorandum in the form of an executive summary of our draft conclusions.
Depending upon the results of the initial phased process, Lurie will assist with implementation and follow-up activities that may be necessary. Additional time may be required to be spent:
- Reviewing domestic and international restructuring planning
- Development of detailed memoranda and board/owner presentations
- Implementation assistance
- Post-implementation compliance assistance
If you have any questions or would like additional information, contact your Lurie advisor or the tax legislation review team: