2018 Tax Changes Impacting 2017Posted: January 8, 2018
The new tax act doesn’t change any rules or law for taxes that companies will pay related to 2017. If you’re a CPA that spends their time working on tax filings, you have plenty of time to learn about the new law and how it will impact your work. The earliest it might impact you is your company’s first quarter tax payment and that is 4 months away. If your job is tax planning, you have a little less time; but your work also does not require the accuracy of an actual tax form or financial statement filing so you have some time to react and can estimate in the meanwhile. If your job is determining the tax provision to be included in the company financial results, then you are already out of time.
You’re out of time because accounting rules require deferred tax assets and liabilities be based on the tax law in effect at the financial statement date. When President Trump signed the tax act before Christmas, that meant it became the law in effect as of December 31, 2017, and therefore tax assets and liabilities which will be realized and paid in future years must be based on the new law. Considering the billions of dollars of deferred taxes, the change in rates is likely to be material for many companies, either increasing or decreasing income all at once in the quarter ending December 31, 2017.
Income will increase if the company has a net deferred tax liability as that liability is decreased. Income will decrease if the company has a net deferred tax asset as that asset value is reduced. Those effects need to be included in quarter-end financial results which are usually finalized in the first few days after quarter-end. That means CPAs working on tax provisions just have a couple of weeks to get the answer computed, and it has to be right because the change will be audited. The likely materiality of the adjustment also means that many public companies will be filing 8-Ks to tell the world the impact and those have to be filed as soon as the amount is known, so the time period to get the number right is shrunk even more.
Yes, while many CPAs were spending time with family and friends between Christmas and New Year’s Day, a few of our brethren were working hard to figure out the impact of the new tax law on their companies financial results and tell the world. Which were you?