Question

Now that the financial operations for 2018 are nearly complete, Mark has requested a meeting with you to review Metro Group’s 2018 federal income tax liabilities and discuss Metro Group’s future federal income tax strategies in the wake of current tax reform. Mark has read many news articles about the 2018 Tax Cut and Jobs Act (2018 tax reform) and has asked you to highlight significant changes you believe Metro Group should consider in 2018. What key tax reform changes will you discuss with Mark? (10 points)

Answer 1

The Tax Cuts and Jobs Act-signed into law on December 22- represents a substantial overhaul of the US tax code, lowering the nation's overall tax obligation by reducing rates for businesses and individuals alike.

Not counting those raised from repatriated profits, federal revenues are expected to fall by $205 billion in 2018 and $323 billion in 2019-roughly equal to 105 percent of the nation's GDP. Leaving this money in the hands of corporations and individuals is projected to add between 0.25 and 1.5 percentage points to GDP growth over the next few years.

One of the most significant features of the law is the reduction of business taxes, representing a dramatic and permanent change for the economy. The corporate tax rate will be cut from 35 percent currently to 21 percent, pushing down the effective tax rater on business from 25 percent towards 21 percent. Small and medium sized pass through businesses- in which profit will also see a reduction in their effective tax rate.

The legislation bought America's treatment of overseas revenue more closely into alignment with international norms, which could make US businesses more competitive on the global stage. Provision in the law will make taxation more territorial by limiting overseas liabilities and encourages the repatriation of profit held abroad.

Businesses will also be allowed a 100 percent bonus expending deduction, up from the current 50 percent bonus depreciation allowance. Allowing businesses to deduct the full value of their capital expenses immediately-rather than following a years-long depreciation schedule-may encourages them to move ahead with planned expansions and acquisitions.