We surveyed our accountants and tax professionals to find out exactly how tax reform and other important national events have been impacting businesses and their financial operations. Here’s a look at what our advisors saw during the 2019 tax season and the hot topics that businesses should keep in mind as the 2020 tax season approaches.
Tax filings and payments are a necessity in business, and it’s no surprise that the 2019 tax season brought many twists and turns as businesses tried to navigate the sweeping tax reform changes, unexpected natural disasters and effective tax planning strategies. With the complexities of the new tax law, we saw an increase in the number of extensions.
In a recent behind-the-scenes survey of our accountants and tax professionals, we revisited the 2019 tax season to see where our clients began, how they navigated these changes and challenges and how they emerged on the other side. Unsurprisingly, we found some common threads among our clients’ experiences.
From gaining an initial understanding of the impact of new tax law to the tangible dollar change on their bottom line, our clients have seen quite a bit in the last year. Here are the takeaways from our team about what was most important.
Top Tax Takeaway 1: Tax Planning and Preparation
Business owners and individuals alike were required to implement the December 2017 Tax Cuts and Jobs Act (TCJA) and all of its various components. In the months and weeks leading up to tax season, our clients wanted to be fully aware of what tax reform would mean for them ahead of time. Across the board, our team saw that our clients were committed to investing time into understanding how the new law applies to them and meeting with our team to gain an educated perspective about the issues. We found that through this process and through open dialogue with our team, clients were able to gain a better understanding of the complexities of the new law, planning opportunities as well as the direct impact to them. Through planning meetings, several of our clients were able to take advantage of tax-saving strategies such as entity structure change, structuring debt financing, profit-sharing plans, tax credits and incentives and other tax benefits which were made available through the Tax Cuts and Jobs Act highlighted below.
Top Tax Takeaway 2: Changes in Accounting Methods
The TCJA brought about changes to the definition of a small business, which allowed many of our clients new opportunities for favorable accounting methods that were previously unavailable to them. The ability of more businesses to use the cash method of accounting as well as changes to the inventory capitalization rules helped many of our clients decrease their tax liabilities.
Top Tax Takeaway 3: Qualified Business Income (QBI)
Clients also noticed that the new Internal Revenue Code Section 199A proved to be very beneficial for businesses operating as pass-through entities. Section 199A provides for a deduction of up to 20% of domestic qualified business income (QBI) from a pass-through entity or sole proprietorship. For clients who were able to take full advantage of the 20% deduction, the top marginal tax rate of 37% is reduced to 29.6% on this QBI. The pass-through deduction also applies to estates and trusts, and the final regulations issued in January 2019 allowed for grouping of similar businesses and clarification for the applicability of Section 199A for real estate enterprises through the availability of safe harbor guidelines.
Top Tax Takeaway 4: Hurricane tax relief
Some of our clients were drastically impacted by Hurricane Michael, which devastated communities in the Florida panhandle, and many had to recover their business operations in the midst of tragedy. Since the tax code allowed for the deduction of casualty losses, many of our clients were able to take advantage of this tax relief. Casualty losses were applicable to businesses located within federally declared disaster areas, and our clients were able to find some relief during this stressful time. With the help of our tax team, many were able to implement future disaster planning strategies based on their unique business needs.
Making the Most of these Tax Takeaways and Recommendations for the Future
Our team’s greatest observation is that there is a lot of opportunity in this new tax landscape to create real, impactful change for businesses, and it all starts with preparation on the front-end, communications throughout the entire tax process and a trusted and committed tax advisor who is well versed in tax law.
Our tax team’s tax takeaways may easily be a reflection of your own 2019 tax experience, or they may have you wondering if you have evaluated relevant tax planning strategies that may be available. Regardless, it’s important to know the basics of what the 2019 tax issues are so that your business can be aptly informed for how to take advantage of these opportunities in 2020 and in the future.
Many of our clients have participated in one-on-one meetings with our team to review their financial and operational situations after filing their returns in order to set themselves up for success in the upcoming years, which our advisors strongly recommend.
It’s anticipated that businesses and individuals will still be adjusting to the multitude of tax reform changes in the 2019 taxable year, so it’s never too late to review your business operations to determine how you and your business can make the most of the new tax landscape.