MLR

Category: Special Publications

Accounting for Business

Welcome to our Resources section, where you will find articles pertaining to accounting for business, business financial planning, financial advice, and the industries of our clients. This section is a great source of information, but please contact us if you feel you need professional financial advice. Maxwell Locke & Ritter is here to offer trusted guidance.

 

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rate on corporations, doubled the maximum Section 179 “expensing” allowance, limited business interest deductions and repealed write-offs for entertainment expenses.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.

The Tax Cuts and Jobs Act (TCJA) has brought many changes for business owners to consider, including whether to change the structure under which their business operates.

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.