Tax Law Changes on the Way: What to Do Now
With the passage of a tax bill by the U.S. Senate, tax law changes for 2018 are imminent. The Senate version still has to be reconciled with the House version so that the new tax law can be voted on and passed.
While we don’t know exactly what those tax changes will be until Congress finishes their work, there are actions business owners and CFOs can be taking now to reduce taxes and improve cash flow.
When it comes to year-end tax planning, generally our advice is to accelerate deductions and delay income and that is exactly what stills needs to be done. We believe that tax rates will be falling in 2018 so pushing deductions into 2017 maximizes their value—companies should consider prepaying items such as business insurance and individuals should consider paying state taxes and mortgage payments in December (instead of the January due date). If your company is on the accrual basis of accounting then it should be advantageous to determine and accrue year-end bonuses (company deduction) and then pay out by March 15, 2018 (individual income).
Furthermore, pulling revenue into 2018 from 2017 makes good business sense as tax rates drop. For example, review prepayments now and at year-end to determine if the cash received can be recognized as income in the following year. However, be aware of the tax rules regarding “constructive receipt”–that is having control over receiving a payment is no different than actually receiving the payment. In other words, in December you cannot instruct someone to pay you later in January in order to forgo the income in the earlier year. There are certainly legitimate rules and means of pushing income into a future period.
Since we have a few weeks to go before 2017 ends and the new tax law (hopefully) begins, now is the time for action.