President Signs Tax Bill: Last Minute Considerations
Friday morning (December 22, 2017), the President signed the final version of the Republican tax reform plan. As you rush to complete your year-end procedures and get home for the holidays, there are a few last minute tax-related items you may want to consider.
Corporate Tax Planning Strategies
With lower tax rates in 2018 for corporations as well significant changes in personal tax laws, many institutions are looking to minimize their taxable income for 2017. With less than ten days left before year-end, there are still some strategies that you may be able to employ.
Accelerate Depreciation Deductions
For assets placed in service during 2017, businesses have several options to accelerate tax deductions including:
- Section 179, which allows for up to $510,000 in deductions for qualified 2017 purchases
- 50% bonus depreciation on qualified assets placed in service through September 27, 2017
- 100% bonus depreciation on qualified assets placed in service after September 27, 2017 (as included in the new reform bill)
In addition, you may be able to further accelerate tax depreciation on buildings including those placed in service in prior years by completing a cost segregation study prior to filing their 2017 tax return. (Though given the short timing, this may require you to extend your tax return.)
For more information on cost segregation studies, please visit: https://www.claconnect.com/services/tax/cost-segregation-studies
Prepay Certain Expenses
Both cash basis and accrual basis taxpayers may be able to prepay expenses before year-end and deduct them on their 2017 tax return if certain conditions are met.
Limitations apply on which types prepaid expenses are deductible, generally the amount must be fixed (not merely an estimate), and the period covered must not be more than 12 months and end no later than December 31, 2018. Items such as property and casualty insurance, health insurance, postage meters, maintenance contracts, and service contracts could potentially qualify.
Some institutions have had success in getting health insurance companies to provide bills for 2018 insurance, but you would need to check with your specific vendors.
Properly Structure Accrued Bonuses
If you are an accrual basis taxpayer and are accruing year-end bonuses, you may be able to deduct your bonuses on your 2017 tax return, but only if certain conditions are met. Because of the rate decrease in 2018, it is more important than ever to ensure that you properly report any bonus accruals for tax purposes.
In order to be deductible in 2017, accrued bonuses must be paid to employees within 2.5 months of year end and the amount to be paid must be fixed and determinable. Generally this means that bonuses must be determined through a formula that is fixed prior to year-end or that corporate action has fixed the total amount payable to the employees as a group.
Personal Tax Strategies
If you haven’t read our recent article on last minute personal tax planning strategies, please see the link below.
We are recommending that our personal tax clients consider:
- Paying their 4th quarter state tax estimates prior to December 31st
- Prepaying their 2017 real estate taxes that are due in 2018 by December 31st
- Accelerating charitable deductions to 2017, if they might not be able to itemize in future years
C Corporations: Deferred Tax Adjustments
Because the new 21% C Corporation tax rate will not go into effect until 2018, there is no need to change the regular tax expense calculation that you have been doing every month/quarter during 2017.
However under generally accepted accounting principles (GAAP), the deferred tax assets/liabilities recorded on your books should be adjusted as of December 31, 2017. This is because those deferred tax assets/liabilities represent income or deductions that will be reported on a future tax return when rates are lower. This adjustment should be recorded through your 2017 income statement, if material.
The tax situation faced by every institution and individual is unique. Please feel free to contact the CLA Financial Institution team to further discuss how the tax reform bill may impact you.