Tax Law Changes – The GAAP Effect

By Lisa Blankman, CPA
Manager, Audit & Assurance Services
LBlankman@sponselcpagroup.com

The tax reform is here, with significant changes to both individual and business taxation that have been covered extensively in recent weeks. As you’re closing out your books for 2017 and preparing the year-end financial statements, you may be wondering if the tax law changes have any direct effect on your company’s GAAP financial statements? The answer is yes, they do — if you have a C corporation.

For C corporations, deferred tax assets and liabilities are recorded based on temporary differences between book and tax reporting. For example, if a company has a significant net operating loss carryforward, the deferred tax asset recorded will represent expected tax relief in future periods.

Deferred tax assets and liabilities are recorded as of the balance sheet date based on expected future tax rates. With the tax law changes in effect by the end of 2017, the new effective tax rates starting in 2018 should be used when calculating and recording the deferred tax asset/liability. For GAAP financial statements with footnotes, there will also be a new paragraph added to disclose the change in tax rate, including the prior rate and the newly enacted rate. Considering the tax law changes, this is a relatively minor change to the presentation/disclosure in your financial statements, but it’s something to be aware of when preparing and reviewing your 2017 financial statements.

If you have any questions, please call Lisa Blankman at (317) 613-7856 or email LBlankman@sponselcpagroup.com.

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