Finances

Tax reform opportunities to consider as 2017 winds down

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Congress is enacting the biggest tax reform law in 30 years — one that will fundamentally change the way your federal income tax bill is calculated. Since most of the changes will go into effect next year, there’s still a narrow window before year-end to soften or avoid the impact and best position yourself for the tax breaks that may be heading your way.

Here are 7 last-minute moves to consider as 2017 comes to a close:

  1. If you’re about to convert a regular IRA to a Roth IRA, postpone the conversion until next year. That way, you’ll defer income from the conversion until next year and have it taxed at lower rates.
  2. If you’re not subject to the Alternative Minimum Tax (AMT), pay the last installment of your 2017 estimated state and local taxes no later than December 31, 2017, rather than on the 2018 due date.
  3. Charitable contributions after 2017 may not yield a tax benefit because you won’t be able to itemize deductions, so consider accelerating some charitable giving into 2017.
  4. Consider accelerating “discretionary” medical expenses into this year. For example, get new glasses or contacts, or see if you can squeeze in expensive dental work such as an implant.
  5. If a higher alternative minimum tax (AMT) exemption in 2018 means you won’t be subject to the 2018 AMT, it may be worthwhile to push such deductions into next year, such as exercising an incentive stock option (ISO).
  6. Under the new law, alimony payments aren’t deductible by the payor or includible in the income of the payee, generally effective for any divorce decree or separation agreement executed after 2017. So if you’re in the middle of a divorce or separation agreement and anticipate winding up on the paying end, it would be to your advantage to wrap things up before year end. On the other hand, if you’ll likely wind up on the receiving end, it would be worth your while to wrap things up next year.
  7. The new law suspends the deduction for moving expenses after 2017 (except for certain members of the Armed Forces), as well as the tax-free reimbursement of employment-related moving expenses. So if you’re in the middle of a job-related move, try to incur your deductible moving expenses before year-end. Or, if the move is connected with a new job and you’re getting reimbursed by your new employer, press for reimbursement before year-end.

These are just some of the general year-end moves that should be considered in light of the new tax law. As always, this should not be considered tax advice. Be sure to consult with your CPA or tax advisor for advice specific to your situation.

New lease accounting standards: Planning ahead to protect your organization

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The Financial Accounting Standards Board (FASB) is gearing up to align U.S. standards with global accounting standards, increasing transparency in financial reporting and altering the way companies account for their leases.

The mandate will become effective for most businesses in January 2019 — a date that might seem far into the future, but preparing to comply might take more time and resources than you think. In fact, 31% of executives feel their organizations are unprepared, according to a recent Journal of Accountancy article.

What’s so complicated about new lease accounting standards?

Under the new rules, you’ll be required to report your leases as both assets and liabilities on your balance sheet. This applies to real estate, vehicles and equipment. What’s more, the rent obligations that your leases reflect are essentially recognized as debt — which could pose a danger to your credit and bottom line.

Current lease accounting treats leases as either capital or operating leases, and there are specific rules as to their classification. But under the new law, the FASB has mandated all leases whether Type A (financing or capital) or Type B (operating) be capitalized on the balance sheet, including the related lease liability.

For example, consider your debt covenants with banks. Many loan documents include various debt covenants, such as debt to equity ratio or debt service coverage ratio as well as prohibitions against incurring new debt. But operating leases, which are currently included only in footnote disclosure, are nowhere to be found on the typical balance sheet.

FASB standards will also require Type B leases to be recorded as an available-for-use asset with a corresponding lease payable. What does that do to your bank covenants, or better yet, for nonprofit organizations? How do you explain the rent in your current grants being reflected as interest?

There’s no better time than the present

Companies will have to take a closer look at what they classify — or fail to classify — as lease agreements. Keep in mind, this includes options to lease for future expansion, which you’ll be required to treat as if they’re reflected on the books right away. It may even motivate tenants to purchase their buildings outright since they’ll be handled the same way as renting — another obligation on the balance sheet.

By preparing now, you’ll gain a clearer idea of what to expect in the coming months, and ultimately, save money and gain peace of mind without the last-minute scramble as the deadline nears. If you haven’t already, set up a meeting with bankers and funding sources and begin a dialogue regarding the possible effects of the new accounting standard on your grant funding and loan covenants. Act now and avoid any surprises from your accountant or auditor in 2020.