BDO’s Tax Reform Holiday Survival Checklist

December 2017

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. Whether it’s what you asked for this holiday season or not, there’s no gift receipt for tax reform. Buckle up.
 
Before you cancel that vacation, keep in mind that reacting to these massive changes isn’t something that can or should be done overnight. Companies should take on tax reform in three stages: determining and addressing the immediate to-dos that require attention before the end of the year, navigating the first few months of 2018, and finally, strategizing for the long-term.
 
To help you prioritize what to do now—and still squeeze in some time for family and presents—we’ve put together a survival checklist for the next Nine Days of Tax Reform.
 
  1. Cozy up with a good book bill. The new legislation includes over 1,000 pages of provisions and explanatory statements, many of which go into effect by the first of the year. 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.  
 
  1. Gather ‘round your data. 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.
 
  1. Establish priorities. Focus on the areas that have the greatest impact and urgency. For most companies, the three main areas requiring immediate attention are potential non-automatic accounting method changes, income tax accounting implications and any changes in entity. 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.
 
  1. Jump on urgent deadlines. Non-automatic accounting method changes require IRS filing fees and must be filed with the IRS National Office in Washington, DC no later than the last day of the year of change. If a calendar-year taxpayer wishes to effect a change in method non-automatically for the 2017 tax year, the change must be filed no later than December 31, 2017.    
 
  1. Gear up for 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 before the year is out.  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.
 
  1. Figure out your flexibility. Analyze how the new tax laws will impact your entity of choice, 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. 
 
  1. Start thinking 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 decisions in light of tax reform. 
 
  1. Initiate tax reform conversations with your tax advisor. Tax reform of this magnitude is the biggest change we’ve seen in a generation, and will require intense focus to understand not only how the changes apply at a federal level, but also how to navigate the ripple effects this is likely to have on state taxation as well.