As December quickly approaches, now is the time to review business tax planning. The following are some items to consider as the year winds down.
- Revenue changes for GAAP purposes – new standards were issued for recognizing revenue from contracts with customers. The standards are effective for 2018 and 2019 reporting. These items may change tax reporting and/or require certain accounting method changes with the IRS.
- Lease changes for GAAP purposes – new standards were issued for accounting for leases with terms of 12 months or more by recognizing lease assets and lease payment liabilities – capital lease treatment. The standards are effective for 2019 and 2020 reporting. These items may require additional book to tax differences be recognized and changes in deferred tax accounting.
- Choice of Entity – whether you are a start-up or a seasoned business, year-end is a good time to consider whether your choice of entity still fits your needs. With potential legislation impacting tax rates for both corporations and flow-through entities, consideration should be given to whether any opportunities are available. Check the Box and S-election options are generally allowed up to March 15 for current year classifications.
- New Partnership Rules – recent law changes affect the way the IRS will treat partnerships under audit for taxable years beginning after 2016. Additional tax assessed will be collected at the partnership level. Some opt-out provisions are available. Existing partnerships should review the potential effect and consider opting out or if partnership agreement changes could be warranted.
- Reasonable Compensation – certain business entities can come under IRS scrutiny either for paying insufficient compensation to owners or excess compensation to owners. Year-end is the time to review your current compensation structure to determine if adjustments should be made before year-end.
- Basis Considerations – if business losses are being generated, ensure that you have sufficient basis to take the losses. Consider opportunities to increase basis if warranted, such as loans or additional capital contributions. Also revise your tax planning to account for loss limitations in the current period.
- Accelerate Deductions – if the lower rates proposed in current tax reform packages are deferred until 2018 or later, deductions may potentially be worth more this year. Consider capital asset investments to take advantage of the current options for accelerated depreciation and Section 179 expensing.
- Consider R&D Credit and DPAD – changes in your business may now qualify you for these incentives. Current proposed tax reform may also change some of these provisions, so now is the time to take advantage if applicable.
- State Tax Planning – has your business made any operational or sales expansions that involve doing business in a new state? This activity can mean additional registration and tax obligations and should be reviewed prior to year-end so any compliance items can be addressed.