Are the Odds Taxed Against You? [Common Questions about Tax Reform Answered for Businesses]

Written by William Dow, CPA and Katye Coats, CPA on October 2, 2019

They say that the only two certain things are death and taxes. Maybe a more accurate statement would be that the only two certain things are death and increasingly complicated taxes. In fact, it can be hard for an average taxpayer to be truly certain about taxes at all. Headlines and hearsay unfortunately have the potential to create more questions than answers when it comes to your company’s tax position.

As 2019 draws to a close, it’s even more important to find the answers to the questions that matter for your company’s taxes so that you can effectively move forward in your tax planning That’s why we’ve assembled some of the most common questions that companies have about tax reform, as well as the answers that can help you solidify your knowledge about your business’s unique tax position and ensure that your company is positioned for successful tax planning for the year to come.

Why should my business care about tax reform?

It seems like every year, at least a handful of items have changed in the tax code. Understandably, it can be tempting for taxpayers to become numb to the frequent tax alerts and changes—not fully understanding how and if they are impacted. But, tax reform is different.

The Tax Cuts and Jobs Act was the most sweeping change to federal tax law since 1986, and the changes were so substantial for so many different parts of the tax code that virtually every taxpayer—both individual and business—has been impacted.

The tax law has changed drastically, and it’s important to know how your business is impacted so that you can effectively plan for the successful financial future of your organization.

How can I understand how tax reform impacted my business?

Since the Tax Cuts and Jobs Act went into effect, many businesses have had to re-evaluate their entire tax structure. Many have also seen changes for accounting methods, qualified business income deductions, interest expense limitations, inventory method modification and the corporate tax rate change completely alter how they have historically viewed their tax position. But those are just a few examples of the many ways that businesses across the country have needed to adapt to a new tax landscape. Because each business is unique, tax reform (and tax savings in light of tax reform) will inevitably mean different things for different businesses.

That’s why our team recommends that you meet with a tax advisor to consider your business’s specific situation. If you haven’t considered how the tax reform changes impact your business, there’s still time.

Learn more about how taxpayers were impacted by tax reform in this podcast episode: The New Norm and Tax Reform.

If I file an extension, am I going to get audited by the IRS?

Filing an extension alone does not make you more or less likely to be audited by the IRS. In fact, we often recommend that our clients consider filing extensions. In some cases, extending actually benefits taxpayers because they can wait on any pending guidance from regulatory agencies (or taxing authorities) for issues that impact their tax returns. This allows taxpayers to ensure that everything is correct on their returns when they file them, rather than possibly having to amend them retroactively.

Do tax reform changes mean that I should reconsider my business’s entity status?

Possibly. Because corporate tax rates dropped from 35% to 21%, tax reform changes made it beneficial for some organizations change to a different entity status (e.g., a C Corporation).

While the benefit has the potential to be great, it’s also important to remember that this particular area, including the related 20% qualified business income deduction, is one of the most complicated pieces of the new tax law. The best way to know what entity status is best for your business and its owners in light of tax reform—including considering qualified business income deductions—is to talk with an advisor about your specific situation.

Learn more about the trends our tax team saw and the recommendations they gave about entity status in light of tax reform changes in this podcast episode: The New Norm and Tax Reform.

When do I need to start thinking about my business’s tax planning?

The short answer is yesterday. But don’t fret; there is still time to work through tax planning before the end of 2019. Strategically thinking about your business’s tax situation in the remaining months of 2019 can better position you to optimize available tax saving strategies. When looking to make changes in your business to capture available savings, a proactive approach executed before the end of the year is your best bet. It’s much more difficult to take advantage of available opportunities after the year ends. Waiting to strategize your tax planning may be more costly, or you may miss out on time-sensitive items altogether.

My business used to pay Alternative Minimum Tax before tax reform, and now I’m not paying it after tax reform. What happened?

The Tax Cuts and Jobs Act completely repealed the Alternative Minimum Tax for corporations, so businesses that were previously paying this tax no longer will do so going forward.

What do I need to know about tax reform for effective tax planning for the future?

The essentials that will guide your business down a successful road of tax planning depend largely on you business’s industry. Because tax reform impacted so many industries differently, the best course of action is to talk with an advisor about how you can most strategically plan for your specific business.

Some of the most important topics that your advisor should consider in tax planning include:

  • Depreciation and inventory
  • Repair and maintenance regulations
  • Estate planning (for privately owned businesses)

Moving Forward With Year-End Tax Planning

Though tax reform and changes may be intimidating, it’s important to remember that when the right information is applied to an effective tax strategy, the benefit can be great for the future of your organization. If you have questions that weren’t answered here about tax reform and how your company should adapt in light of recent changes, please contact a Warren Averett advisor.

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