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7 reasons why tax reform is still important
The Tax Cuts and Jobs Act, commonly referred to as tax reform, was the most significant overhaul of our tax laws in more than 30 years and was big news—for a time. It’s not much in the news anymore, and you may believe there’s nothing to think about until tax season rolls around again.
However, one thing is becoming certain for us and many businesses—as new guidance becomes available, the resources you put into planning now could save you time and money in the future.
We at Eide Bailly recently asked our tax partners a simple question: Why should clients still care about tax reform?
Here are the top seven responses from those conversations:
1. The impact of tax reform is not just a one-year thing. Strategies that make sense long term are much more critical than short-term solutions.
2. Tax reform increased the need for tax planning by many of our Schedule F (farming) clients.
3. It is important that pass-through clients, such as partnerships, S corporations and trusts, review decisions that were made to ensure those decisions will have the correct impact on going forward.
4. Understanding the limitations on the qualified business income (QBI) deduction and itemized deductions will be important tax planning items for many years.
5. Tax planning is an integral part of overall financial planning.
6. Though many tax reform issues remain unresolved, tax planning should be done on a regular basis to make sure prior tax planning still aligns with current tax information and contemplated transactions.
7. Tax planning is critical for clients who want to get the most out of what they currently have, or do.
Real Benefits of Tax Reform
We have seen clients benefit from tax planning and other specialized conversations surrounding tax reform. Here are a few examples.
• An optometric client switched to cash basis reporting and had a reduction in taxable income of over $500,000.
• A client was having cash flow issues paying taxes on S corp earnings. The reason, the S corp wasn’t paying out enough in distributions to cover the taxes. A solution came from tax reform through the qualified business income deduction providing a 20 percent benefit, which allowed for a higher S corp distribution that was then taxed at a lower tax rate at the shareholder level.
On a wider basis, through advanced tax planning, many clients have benefited from knowing the new rules by applying:
• A reduction in tax rates
• The change to the cash method of accounting
• QBI deduction benefits
• Expanded expensing for asset purchases
Keeping your own tax situation top of mind and being proactive in your tax planning can help you benefit from tax reform now and into the future.
For more information, call 602-264-5844 or click here.