MLR

Category: Special Publications

The House passed legislation on December 17th that includes a tax cuts package and that is expected to be approved by the Senate this week and to then be signed by President Trump.  The tax package includes extensions for dozens of expiring tax provisions, modifications to certain provisions of the Tax Cuts and Jobs Act (TCJA) passed in 2017, retirement savings incentives, tax relief for individuals and businesses located in Presidentially-declared disaster areas, and other changes.  Here are some noteworthy changes included in the package.

Frequently, investors engage in securities transactions at year-end to improve their tax situation. This requires a basic understanding of the current tax rules for capital gains and losses. We want to review some of the important tax changes in the Tax Cuts and Jobs Act (TCJA) and how it affects investors and estate/gift planning with you.

The impact of the Tax Cuts and Jobs Act (TCJA) on businesses was just as significant as it was for individuals. For starters, the TCJA imposed a flat 21% tax rate on corporations, doubled the maximum Section 179 “expensing” allowance, limited business interest deductions and repealed write-offs for entertainment expenses. In addition, the TCJA made extensive changes affecting international taxpayers that could play an important role in any year-end planning decisions.

Year-end tax planning in 2019 remains as complicated as ever. Notably, many are still coping with the massive changes included in the biggest tax law in decades—the Tax Cuts and Jobs Act (TCJA) of 2017—and determining the most favorable strategies. Among other key changes for individuals, the TCJA reduced tax rates, suspended personal exemptions, increased the standard deduction and revamped the rules for itemized deductions. Generally, the provisions affecting individuals went into effect in 2018, but are scheduled to “sunset” after 2025. This provides a limited window of opportunity in some cases.

In the context of mergers and acquisitions, potential investors get a level of assurance when the investment target is audited.  However, relying solely on the target’s audited financial statements when making an investment decision could be shortsighted.

Many companies provide their financial statements, along with a CPA’s report, to lenders, investors, suppliers and customers. Informed readers of the report will gain varied levels of comfort based on the type of financial statement provided.

The standard financial due diligence process focuses on providing potential investors with an understanding of a company’s sustainable EBITDA, historical operating trends, working capital needs, and accounting policies and procedures.

However, access to the C-suite during fieldwork allows a financial diligence provider to gain valuable insight into other aspects of a company’s operations that may be just as important when evaluating a deal. In particular, financial diligence teams may uncover significant issues affecting post-acquisition integration and the investor’s ability to effectively monitor and effect change post-transaction.