OUR THOUGHTS ON:

Does the New Tax Act Affect My Financial Statements?

Tax

By Mary Richter

Most of us were relieved when a tax act was passed in time to avert the much discussed "fiscal cliff" (at least for now). While many businesses retain some much valued deductions and credits without any lapse in benefits, for financial statement purposes, it's not that simple. Generally accepted accounting principles require that tax expense be calculated using enacted tax laws -- that is, the tax laws must be in effect as of the date of the financial statements.

So what does this mean to your business? The American Taxpayer Relief Act of 2012 was not "enacted" (signed by the President) until 2013. Thus, certain benefits of the tax law, primarily certain tax credits, cannot be recorded for financial statement purposes until 2013. For example, the R&D credit had previously expired (as of 12/31/11) and was not in effect for 2012 until 2013. So, no benefit can be recorded in the 2012 financial statements for R&D credit. Instead, in 2013, there will be a "catch up" adjustment recorded.

Most banks will adjust for taxes in calculating various covenants, but, if your business is significantly affected by the tax law, you may wish to evaluate the impact and speak with your bank in advance of completing your year-end financials, so that there are no surprises.

© 2013 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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