United States: Tax Planning For Tax Reform: What You Should Be Doing Now

Republican control of both the White House and Congress has created a historic opportunity for sweeping tax reform. Republican lawmakers are proposing structural changes to the tax code that would have a dramatic impact on all businesses.

Although there are many steps left in the legislative process, businesses don't have time to wait and see what happens.

Your planning should begin now for several reasons:

  • Immediate opportunities: Many planning opportunities will only be relevant if implemented before tax reform is effective. You don't want to miss potential permanent tax savings from things like accelerating deductions or repatriating income early.
  • Long-term business decisions: No company should be making a long-term business decision without understanding the potential future impact of tax reform. The inability to deduct interest or the cost of imports could drastically change the economics of many current strategic business decisions.
  • New tax planning: Sweeping legislative changes would force companies to rethink every aspect of their current tax planning strategy. Long-standing supply chain processes, financing arrangements, transfer pricing agreements, capital structures, and legal entity status can't be changed overnight. Planning should start now even if changes wouldn't be implemented until after reform is effective.
  • Financial statements: It's past time to begin assessing the potential financial statement impact of the proposed changes. Tax reform may pose significant risks, like devaluation of deferred tax assets, potential liability on unremitted foreign earnings, and even whether certain taxes still fit the definition of income tax under generally accepted accounting principles. Companies identifying risks should already be considering whether the risk merits discussion in the Management Discussion and Analysis (MD&A).

The changes being proposed

Your planning should start with an understanding of what is being proposed, and how it would affect your company. House Republicans have released a blueprint for a tax reform that would shift the U.S. tax system toward a destination-based, border-adjustable cash-flow tax that mimics the economic impact of a consumption tax in many ways. The Trump administration has released an outline for tax reform with its own sweeping proposals.

Republicans are working on combining these proposals, which should be considered the starting point for tax reform. Many of the proposed changes would have a profound impact on business taxation, including:

Cutting the top corporate rate from 35% to 20% (House blueprint) or 15% (Administration plan) and creating a lower rate for certain pass-through income

  • Eliminating most credits and special deductions
  • Allowing immediate expensing of business property
  • Ending deductions for net interest expense (with certain exceptions)
  • Disallowing deductions for imports and excluding export revenue from taxable income
  • Enacting a territorial regime exempting most foreign source income from U.S. corporate tax
  • Imposing a one-time tax at reduced rate on previously unrepatriated earnings

Your first step should be modeling the impact of the proposed changes, which will allow you to identify and plan for actions needed before and after reform is effective. You will also be able to gauge tax reform's potential impact on current business decisions and the risk to your financial statements.

Acting early

Some of the most effective planning opportunities created by tax reform will require action before reform is actually effective. The potential for a significant rate cut in a future year means deferring income and accelerating deductions may be even more powerful than usual.

You will want to use deductions against today's higher rates and recognize income when rates are potentially lower. Consider how much value your deductions and tax attributes could lose against a rate of just 20%. Many companies are reluctant to pursue timing changes if the change doesn't provide a financial statement benefit. But acting before a rate cut can turn timing plays into permanent benefits. In a few instances, such as with foreign earnings, acting now can mean paying tax currently to save in the future. Key opportunities include:

Accounting methods review – Businesses employ dozens of separate accounting methods on everything from inventory and rebates, to software development and advanced payments. Identifying a method that accelerates deductions or defers income often results in a favorable adjustment that can be recognized fully in the year the change is made.

Fixed assets and repairs – Building assets represent a very large expense for most businesses, and not all costs associated with these assets must be capitalized and depreciated over a 39-year schedule. Many building assets can be reclassified and depreciated using shorter lives, while other costs may qualify for immediate deduction as repairs or maintenance.

Compensation and benefits – Making minor changes to bonus pools, other compensation arrangements, and even benefit plans may present opportunities to accelerate deductions against today's higher rates.

Repatriating foreign earnings – Any company with offshore earnings should assess whether it would pay less in tax if earnings are repatriated before tax reform and foreign tax credit are available or after when the rate may be reduced. You may not want to act until you know whether tax reform will actually be enacted and how the one-time tax will apply, but you should be preparing to support the amount and location of unrepatriated earnings so you can make an informed decision.

Your business should carefully consider its entire tax and financial situation before making major decisions. It's possible that rate cuts are made effective early, or don't happen at all. The good news is that deferring tax is typically a good strategy, if only for the cash flow benefits and the time value of money. The value of other planning strategies, such as repatriating earnings early, will be heavily dependent on the outcome of tax reform. Either way, your business may need to take action before the effective date of tax reform.

Assessing risk

Even if you don't make any actual tax planning moves before tax reform is effective, it's critical to understand the impact tax reform would have on current business decisions with long-term economic affects. Key questions include:

  • Does it make sense to postpone large capital projects until full expensing is available through tax reform?
  • How would the loss of the interest deduction affect financing plans, particularly with assets that wouldn't benefit from full expensing, such as land, stock acquisitions, or assets placed in service before tax reform is effective?
  • Has due diligence been performed on how changes like the loss of import or interest deductions would affect acquisitions or investments in business lines?
  • Will long-term global contracts or service agreements still make economic sense if reform is enacted?

Planning for the new tomorrow

The biggest tax planning shifts may be made after tax reform is actually effective. But such wholesale changes in tax structuring need to be considered well in advance of enactment. Key considerations include the following:

  • Entity choice Global supply chain
  • Target markets Debt versus equity financing
  • Intellectual property development and jurisdiction
  • Cost-sharing and transfer-pricing arrangements International capital structure
  • Cross-border debt placement
  • Treasury and cash management activities

Assessing financial statement impact

The type of fundamental tax reform lawmakers are discussing raises several important financial statement issues. The principles of ASC 740, Accounting for Income Taxes, apply to "taxes based on income." Proposals meant to shift to a destination-based cash-flow tax raises the question of whether they should be accounted for under ASC 740 or considered a non-income based tax. Many other proposed changes, like full expensing may create or change existing temporary differences between tax and financial statement accounting.

If tax reform is ultimately enacted, the impact must be recorded in the financial statements in the period of enactment, regardless of the effective date. Deferred tax assets and liabilities must be measured at the enacted tax rate expected to apply when temporary differences are settled or realized, meaning that companies may encounter increased complexity if rule and rate changes phase in over several years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions