2021 Year-End Tax Planning for Businesses
As the U.S. entered 2021, many assumed that newly elected President Joe
Biden along with Democratic majorities in the House and Senate would
swiftly enact tax increases on both corporations and individuals to pay
for the cost of proposed new infrastructure and social spending plans,
potentially using the budget reconciliation process to do so. Since then,
various versions of tax and spending measures have been negotiated and
debated by members of Congress and the White House. As 2021 heads to a
close, tax increases are still expected, but the timing and content of
final changes are still not certain.
On November 5, 2021, the U.S. House of Representatives delayed voting on
its version of the Build Back Better Act (H.R. 5376), a package of social
spending measures funded by tax increases. The delay allows members more
time to review the budget impact of the provisions in the bill. Some of
the legislation’s major tax proposals, which mainly target large
profitable corporations and high-income individuals, include:
A 15% corporate alternative minimum tax on companies that report financial
statement profits of over $1 billion.
- A 1% surtax on corporate stock buybacks.
- A 15% country-by-country minimum tax on foreign profits of U.S.
- A 5% surtax on individual incomes over $10 million, an additional 3%
surtax on incomes over $25 million and expansion of the 3.8% Net
Investment Income Tax.
At the time of writing, the House had not yet voted on the Build Back
Better Act. Once the House votes, the legislation will be taken up by the
Senate. If enacted in its current form, the legislation would generally be
effective for taxable years beginning after December 31, 2021; however,
many of the corporate and international proposals affecting businesses
would apply for taxable years beginning after December 31, 2022 – i.e.,
they would be deferred for one year.
The information contained in this article is based on tax proposals as of
November 4, 2021 and is subject to change based on final legislation.
Businesses should continue to track the latest tax proposals to understand
the impacts of possible new legislation, particularly when engaging in tax
planning. Despite the delays and uncertainty around exactly what tax
changes final legislation will contain, there are actions that businesses
can consider taking to minimize their tax liabilities.
Consider tax accounting method changes and strategic tax elections
The 2017 Tax Cuts and Jobs Act (TCJA) lowered the regular corporate tax
rate to 21% and eliminated the corporate alternative minimum tax beginning
in 2018. The current version of the proposed Build Back Better Act would
leave the 21% regular corporate tax rate unchanged but, beginning in 2023,
would create a new 15% corporate alternative minimum tax on the adjusted
financial statement income of corporations with such income over $1
billion. Companies with adjusted financial statement income over $1
billion, therefore, should take into account the proposed 15% corporate
alternative minimum tax when considering 2021 tax planning actions that
could affect future years.
Companies that want to reduce their 2021 tax liability should consider
traditional tax accounting method changes, tax elections and other actions
for 2021 to defer recognizing income to a later taxable year and
accelerate tax deductions to an earlier taxable year, including the
Changing from recognizing certain advance payments (e.g., upfront payments
for goods, services, gift cards, use of intellectual property, sale or
license of software) in the year of receipt to recognizing a portion in
the following taxable year.
- Changing from the overall accrual to the overall cash method of
- Changing from capitalizing certain prepaid expenses (e.g., insurance
premiums, warranty service contracts, taxes, government permits and
licenses, software maintenance) to deducting when paid using the
- Deducting eligible accrued compensation liabilities (such as bonuses
and severance payments) that are paid within 2.5 months of year end.
- Accelerating deductions of liabilities such as warranty costs,
rebates, allowances and product returns under the “recurring item
- Purchasing qualifying property and equipment before the end of 2021
to take advantage of the 100% bonus depreciation provisions and the
Section 179 expensing rules.
- Deducting “catch-up” depreciation (including bonus depreciation, if
applicable) by changing to shorter recovery periods or changing from
non-depreciable to depreciable.
- Optimizing the amount of uniform capitalization costs capitalized to
ending inventory, including changing to simplified methods available
under Section 263A.
- Electing to fully deduct (rather than capitalize and amortize)
qualifying research and experimental (R&E) expenses attributable to
new R&E programs or projects that began in 2021. Similar planning
may apply to the deductibility of software development costs
attributable to new software projects that began in 2021. (Note that
capitalization and amortization of R&E expenditures is required
beginning in 2022, although the proposed Build Back Better Act would
delay the effective date until after 2025).
- Electing to write-off 70% of success-based fees paid or incurred in
2021 in connection with certain acquisitive transactions under Rev.
- Electing the de minimis safe harbor to deduct small-dollar expenses
for the acquisition or production of property that would otherwise be
capitalizable under general rules.
Is “reverse” planning better for your situation?
Depending on their facts and circumstances, some businesses may instead
want to accelerate taxable income into 2021 if, for example, they believe
tax rates will increase in the near future or they want to optimize usage
of NOLs. These businesses may want to consider “reverse” planning
strategies, such as:
Implementing a variety of “reverse” tax accounting method changes.
- Selling and leasing back appreciated property before the end of 2021,
creating gain that is taxed currently offset by future deductions of
lease expense, being careful that the transaction is not recharacterized
as a financing transaction.
- Accelerating taxable capital gain into 2021.
- Electing out of the installment sale method for installment sales
closing in 2021.
- Delaying payments of liabilities whose deduction is based on when the
amount is paid, so that the payment is deductible in 2022 (e.g., paying
year-end bonuses after the 2.5-month rule).
Write-off bad debts and worthless stock
|Tax accounting method changes – is a Form 3115 required
Some of the opportunities listed above for changing the timing of
income recognition and deductions require taxpayers to submit a
request to change their method of tax accounting for the particular
item of income or expense. Generally, tax accounting method change
requests require taxpayers to file a Form
3115, Application for Change in Accounting Method, with the
IRS under one of the following two procedures:
The “automatic” change procedure, which requires the taxpayer to
attach the Form 3115 to the timely filed (including extensions)
federal tax return for the year of change and to file a separate
copy of the Form 3115 with the IRS no later than the filing date
of that return; or
- The “nonautomatic” change procedure, which applies when a
change is not listed as automatic and requires the Form 3115
(including a more robust discussion of the legal authorities
than an automatic Form 3115 would include) to be filed with the
IRS National Office during the year of change along with an IRS
user fee. Calendar year taxpayers that want to make a
nonautomatic change for the 2021 taxable year should be
cognizant of the accelerated December 31, 2021 due date for
Only certain changes may be implemented without a Form 3115.
Given the economic challenges brought on by the COVID-19 pandemic,
businesses should evaluate whether losses may be claimed on their 2021
returns related to worthless assets such as receivables, property, 80%
owned subsidiaries or other investments.
Bad debts can be wholly or partially written off for tax purposes. A
partial write-off requires a conforming reduction of the debt on the books
of the taxpayer; a complete write-off requires demonstration that the debt
is wholly uncollectible as of the end of the year.
- Losses related to worthless, damaged or abandoned property can
generate ordinary losses for specific assets.
- Businesses should consider claiming losses for investments in
insolvent subsidiaries that are at least 80% owned and for certain
investments in insolvent entities taxed as partnerships (also see
Partnerships and S corporations, below).
- Certain losses attributable to COVID-19 may be eligible for an
election under Section 165(i) to be claimed on the preceding taxable
year’s return, possibly reducing income and tax in the earlier year or
creating an NOL that may be carried back to a year with a higher tax
Maximize interest expense deductions
The TCJA significantly expanded Section 163(j) to impose a limitation on
business interest expense of many taxpayers, with exceptions for small
businesses (those with three-year average annual gross receipts not
exceeding $26 million ($27 million for 2022), electing real property
trades or businesses, electing farming businesses and certain
The deduction limit is based on 30% of adjusted taxable income. The amount
of interest expense that exceeds the limitation is carried over
- Beginning with 2022 taxable years, taxpayers will no longer be
permitted to add back deductions for depreciation, amortization and
depletion in arriving at adjusted taxable income (the principal
component of the limitation).
- The Build Back Better Act proposes to modify the rules with respect
to business interest expense paid or incurred by partnerships and S
corporations (see Partnerships and S corporations, below).
Maximize tax benefits of NOLs
Net operating losses (NOLs) are valuable assets that can reduce taxes owed
during profitable years, thus generating a positive cash flow impact for
taxpayers. Businesses should make sure they maximize the tax benefits of
Make sure the business has filed carryback claims for all permitted NOL
carrybacks. The CARES Act allows taxpayers with losses to carry those
losses back up to five years when the tax rates were higher. Taxpayers can
still file for “tentative” refunds of NOLs originating in 2020 within 12
months from the end of the taxable year (by December 31, 2021 for calendar
year filers) and can file refund claims for 2018 or 2019 NOL carrybacks on
timely filed amended returns.
- Corporations should monitor their equity movements to avoid a Section
382 ownership change that could limit annual NOL deductions.
- Losses of pass-throughs entities must meet certain requirements to be
deductible at the partner or S corporation owner level (see Partnerships
and S corporations, below).
Defer tax on capital gains
Tax planning for capital gains should consider not only current and future
tax rates, but also the potential deferral period, short and long-term
cash needs, possible alternative uses of funds and other factors.
Noncorporate shareholders are eligible for exclusion of gain on
dispositions of Qualified Small Business Stock (QSBS). The Build Back
Better Act would limit the gain exclusion to 50% for sales or exchanges of
QSBS occurring after September 13, 2021 for high-income individuals,
subject to a binding contract exception. For other sales, businesses
should consider potential long-term deferral strategies, including:
Reinvesting capital gains in Qualified Opportunity Zones.
- Reinvesting proceeds from sales of real property in other “like-kind”
- Selling shares of a privately held company to an Employee Stock
- Businesses engaging in reverse planning strategies (see Is “reverse”
planning better for your situation? above) may instead want to
move capital gain income into 2021 by accelerating transactions (if
feasible) or, for installment sales, electing out of the installment
Claim available tax credits
The U.S. offers a variety of tax credits and other incentives to encourage
employment and investment, often in targeted industries or areas such as
innovation and technology, renewable energy and low-income or distressed
communities. Many states and localities also offer tax incentives.
Businesses should make sure they are claiming all available tax credits
for 2021 and begin exploring new tax credit opportunities for 2022.
The Employee Retention Credit (ERC) is a refundable payroll tax credit for
qualifying employers that have been significantly impacted by COVID-19.
Employers that received a Paycheck Protection Program (PPP) loan can claim
the ERC but the same wages cannot be used for both programs. The
Infrastructure Investment and Jobs Act signed by President Biden on
November 15, 2021, retroactively ends the ERC on September 30, 2021, for
- Businesses that incur expenses related to qualified research and
development (R&D) activities are eligible for the federal R&D
- Taxpayers that reinvest capital gains in Qualified Opportunity Zones
may be able to defer the federal tax due on the capital gains. An
additional 10% gain exclusion also may apply if the investment is made
by December 31, 2021. The investment must be made within a certain
period after the disposition giving rise to the gain.
- The New Markets Tax Credit Program provides federally funded tax
credits for approved investments in low-income communities that are made
through certified “Community Development Entities.”
- Other incentives for employers include the Work Opportunity Tax
Credit, the Federal Empowerment Zone Credit, the Indian Employment
Credit and credits for paid family and medical leave (FMLA).
- There are several federal tax benefits available for investments to
promote energy efficiency and sustainability initiatives. In addition,
the Build Back Better Act proposes to extend and enhance certain green
energy credits as well as introduce a variety of new incentives. The
proposals also would introduce the ability for taxpayers to elect cash
payments in lieu of certain credits and impose prevailing wage and
apprenticeship requirements in the determination of certain credit
Partnerships and S corporations
The Build Back Better Act contains various tax proposals that would affect
partnerships, S corporations and their owners. Planning opportunities and
other considerations for these taxpayers include the following:
Taxpayers with unused passive activity losses attributable to partnership
or S corporation interests may want to consider disposing of the interest
to utilize the loss in 2021.
- Taxpayers other than corporations may be entitled to a deduction of
up to 20% of their qualified business income (within certain limitations
based on the taxpayer’s taxable income, whether the taxpayer is engaged
in a service-type trade or business, the amount of W-2 wages paid by the
business and the unadjusted basis of certain property held by the
business). Planning opportunities may be available to maximize this
- Certain requirements must be met for losses of pass-through entities
to be deductible by a partner or S corporation shareholder. In addition,
an individual’s excess business losses are subject to overall
limitations. There may be steps that pass-through owners can take before
the end of 2021 to maximize their loss deductions. The Build Back Better
Act would make the excess business loss limitation permanent (the
limitation is currently scheduled to expire for taxable years beginning
on or after January 1, 2026) and change the manner in which the
carryover of excess business losses may be used in subsequent years.
- Under current rules, the abandonment or worthlessness of a
partnership interest may generate an ordinary deduction (instead of a
capital loss) in cases where no partnership liabilities are allocated to
the interest. Under the Build Back Better Act, the abandonment or
worthlessness of a partnership interest would generate a capital loss
regardless of partnership liability allocations, effective for taxable
years beginning after December 31, 2021. Taxpayers should consider an
abandonment of a partnership interest in 2021 to be able to claim an
- Following enactment of the TCJA, deductibility of expenses incurred
by investment funds are treated as “investment expenses”—and therefore
are limited at the individual investor level— if the fund does not
operate an active trade or business (i.e., if the fund’s only activities
are investment activities). To avoid the investment expense limitation,
consideration should be given as to whether a particular fund’s
activities are so closely connected to the operations of its portfolio
companies that the fund itself should be viewed as operating an active
trade or business.
- Under current rules, gains allocated to carried interests in
investment funds are treated as long-term capital gains only if the
investment property has been held for more than three years. Investment
funds should consider holding the property for more than three years
prior to sale to qualify for reduced long-term capital gains rates.
Although the Build Back Better Act currently does not propose changes to
the carried interest rules, an earlier draft of the bill would have
extended the current three-year property holding period to five years.
Additionally, there are multiple bills in the Senate that, if enacted,
would seek to tax all carry allocations at ordinary income rates.
- Under the Build Back Better Act, essentially all pass-through income
of high-income owners that is not subject to self-employment tax would
be subject to the 3.8% Net Investment Income Tax (NIIT). This means that
pass-through income and gains on sales of assets allocable to
partnership and S corporation owners would incur NIIT, even if the owner
actively participates in the business. Additionally, taxpayers that
currently utilize a state law limited partnership to avoid
self-employment taxes on the distributive shares of active “limited
partners” would instead be subject to the 3.8% NIIT. If enacted, this
proposal would be effective for taxable years beginning after December
31, 2021. Taxpayers should consider accelerating income and planned
dispositions of business assets into 2021 to avoid the possible
- The Build Back Better Act proposes to modify the rules with respect
to business interest expense incurred by partnerships and S corporations
effective for taxable years beginning after December 31, 2022. Under the
proposed bill, the Section 163(j) limitation with respect to business
interest expense would be applied at the partner and S corporation
shareholder level. Currently, the business interest expense limitation
is applied at the entity level (also see Maximize interest expense
- Various states have enacted PTE tax elections that seek a workaround
to the federal personal income tax limitation on the deduction of state
taxes for individual owners of pass-through entities. See State
pass-through entity tax elections, below.
Planning for international operations
The Build Back Better Act proposes substantial changes to the existing
U.S. international taxation of non-U.S. income beginning as early as 2022.
These changes include, but are not limited to, the following:
Imposing additional interest expense limitations on international
financial reporting groups.
- Modifying the rules for global intangible low-taxed income (GILTI),
including calculating GILTI and the corresponding foreign tax credits
(FTCs) on a country-by-country basis, allowing country specific NOL
carryforwards for one taxable year and reducing the QBAI reduction to
- Modifying the existing FTC rules for all remaining categories to be
calculated on a country-by-country basis.
- Modifying the rules for Subpart F, foreign derived intangible income
(FDII) and the base erosion anti-abuse tax (BEAT).
- Imposing new limits on the applicability of the Section 245A
dividends received deduction (DRD) by removing the application of the
DRD rules to non-controlled foreign corporations (CFCs).
- Modifying the rules under Section 250 to remove the taxable income
limitation as well as reduce the GILTI and FDII deductions to 28.5% and
Businesses with international operations should gain an understanding of
the impacts of these proposals on their tax profile by modeling the
potential changes and considering opportunities to utilize the favorable
aspects of the existing cross-border rules to mitigate the detrimental
Considering mechanisms/methods to accelerate foreign source income (e.g.,
prepaying royalties) and associated foreign income taxes to maximize use
of the existing FTC regime and increase current FDII benefits.
- Optimizing offshore repatriation and associated offshore treasury
aspects while minimizing repatriation costs (e.g., previously taxed
earnings and profits and basis amounts, withholding taxes, local reserve
restrictions, Sections 965 and 245A, etc.).
- Accelerating dividends from non-CFC 10% owned foreign corporations to
maximize use of the 100% DRD currently available.
- Utilizing asset step-up planning in low-taxed CFCs to utilize
existing current year excess FTCs in the GILTI category for other CFCs
in different jurisdictions.
- Considering legal entity restructuring to maximize the use of foreign
taxes paid in jurisdictions with less than a 16% current tax rate to
maximize the GILTI FTC profile of the company.
- If currently in NOLs, considering methods to defer income or
accelerate deductions to minimize detrimental impacts of existing
Section 250 deduction taxable income limitations in favor of the
proposed changes that will allow a full Section 250 deduction without a
taxable income limitation.
- In combination with the OECD Pillar One/Two advancements coupled with
U.S. tax legislation, reviewing the transfer pricing and value chain
structure of the organization to consider ways to adapt to such changes
and minimize the future effective tax rate of the organization.
Review transfer pricing compliance
Businesses with international operations should review their cross-border
transactions among affiliates for compliance with relevant country
transfer pricing rules and documentation requirements. They should also
ensure that actual intercompany transactions and prices are consistent
with internal transfer pricing policies and intercompany agreements, as
well as make sure the transactions are properly reflected in each party’s
books and records and year-end tax calculations. Businesses should be able
to demonstrate to tax authorities that transactions are priced on an
arm’s-length basis and that the pricing is properly supported and
documented. Penalties may be imposed for non-compliance. Areas to consider
Have changes in business models, supply chains or profitability (including
changes due to the effects of COVID-19) affected arm’s length transfer
pricing outcomes and support? These changes and their effects should be
supported before year end and documented contemporaneously.
- Have all cross-border transactions been identified, priced and
properly documented, including transactions resulting from merger and
acquisition activities (as well as internal reorganizations)?
- Do you know which entity owns intellectual property (IP), where it is
located and who is benefitting from it? Businesses must evaluate their
IP assets — both self-developed and acquired through transactions — to
ensure compliance with local country transfer pricing rules and to
optimize IP management strategies.
- If transfer pricing adjustments need to be made, they should be done
before year end, and for any intercompany transactions involving the
sale of tangible goods, coordinated with customs valuations.
- Multinational businesses should begin to monitor and model the
potential effects of the recent agreement among OECD countries on a two
pillar framework that addresses distribution of profits among countries
and imposes a 15% global minimum tax.
Considerations for employers
Employers should consider the following issues as they close out 2021 and
head into 2022:
Employers have until the extended due date of their 2021 federal income
tax return to retroactively establish a qualified retirement plan and fund
the plan for 2021.
- Contributions made to a qualified retirement plan by the extended due
date of the 2021 federal income tax return may be deductible for 2021;
contributions made after this date are deductible for 2022.
- The amount of any PPP loan forgiveness is excluded from the federal
gross income of the business, and qualifying expenses for which the loan
proceeds were received are deductible.
- The CARES Act permitted employers to defer payment of the employer
portion of Social Security (6.2%) payroll tax liabilities that would
have been due from March 27 through December 31, 2020. Employers are
reminded that half of the deferred amount must be paid by December 31,
2021 (the other half must be paid by December 31, 2022). Notice CP256-V
is not required to make the required payment.
- Employers should ensure that common fringe benefits are properly
included in employees’ and, if applicable, 2% S corporation
shareholders’ taxable wages. Partners should not be issued W-2s.
- Publicly traded corporations may not deduct compensation of “covered
employees” — CEO, CFO and generally the three next highest compensated
executive officers — that exceeds $1 million per year. Effective for
taxable years beginning after December 31, 2026, the American Rescue
Plan Act of 2021 expands covered employees to include five highest paid
employees. Unlike the current rules, these five additional employees are
not required to be officers.
- Generally, for calendar year accrual basis taxpayers, accrued bonuses
must be fixed and determinable by year end and paid within 2.5 months of
year end (by March 15, 2022) for the bonus to be deductible in 2021.
However, the bonus compensation must be paid before the end of 2021 if
it is paid by a Personal Service Corporation to an employee-owner, by an
S corporation to any employee-shareholder, or by a C corporation to a
direct or indirect majority owner.
- Businesses should assess the tax impacts of their mobile workforce.
Potential impacts include the establishment of a corporate tax presence
in the state or foreign country where the employee works; dual tax
residency for the employee; and payroll tax, benefits, and transfer
State and local taxes
Businesses should monitor the tax rules in the states in which they
operate or make sales. Taxpayers that cross state borders—even
virtually—should review state nexus and other policies to understand their
compliance obligations, identify ways to minimize their state tax
liabilities and eliminate any state tax exposure. The following are some
of the state-specific areas taxpayers should consider when planning for
their tax liabilities in 2021 and 2022:
Does the state conform to federal tax rules (including recent federal
legislation) or decouple from them? Not all states follow federal tax
rules. (Note that states do not necessarily follow the federal treatment
of PPP loans. See Considerations for employers, above.)
- Has the business claimed all state NOL and state tax credit
carrybacks and carryforwards? Most states apply their own NOL/credit
computation and carryback/forward provisions. Has the business
considered how these differ from federal and the effect on its state
taxable income and deductions?
- Has the business amended any federal returns? Businesses should make
sure state amended returns are filed on a timely basis to report the
federal changes. If a federal amended return is filed, amended state
returns may still be required even there is no change to state taxable
income or deductions.
- Has a state adopted economic nexus for income tax purposes, enacted
NOL deduction suspensions or limitations, increased rates or suspended
or eliminated some tax credit and incentive programs to deal with lack
of revenues due to COVID-19 economic issues?
- The majority of states now impose single-sales factor apportionment
formulas and require market-based sourcing for sales of services and
licenses/sales of intangibles using disparate sourcing methodologies.
Has the business recently examined whether its multistate apportionment
of income is consistent with or the effect of this trend?
- Consider the state and local tax treatment of merger, acquisition and
disposition transactions, and do not forget that internal
reorganizations of existing structures also have state tax impacts.
There are many state-specific considerations when analyzing the tax
effects of transactions.
- Is the business claiming all available state and local tax credits,
e.g., for research activities, employment or investment?
- For businesses selling remotely and that have been protected by P.L.
86-272 from state income taxes in the past, how is the business
responding to changing state interpretations of those protections with
respect to businesses engaged in internet-based activities?
- Has the business considered the state tax impacts of its mobile
workforce? Most states that provided temporary nexus and/or withholding
relief relating to teleworking employees lifted those orders during 2021
(also see Considerations for employers, above).
- Has the state introduced (or is it considering introducing) a tax on
digital services? The definition of digital services can potentially be
very broad and fact specific. Taxpayers should understand the various
state proposals and plan for potential impacts.
- Remote retailers, marketplace sellers and marketplace facilitators
(i.e., marketplace providers) should be sure they are in compliance with
state sales and use tax laws and marketplace facilitator rules.
- Assessed property tax values typically lag behind market values.
Consider challenging your property tax assessment.
State pass-through entity elections
The TCJA introduced a $10,000 limit for individuals with respect to
federal itemized deductions for state and local taxes paid during the year
($5,000 for married individuals filing separately). At least 20 states
have enacted potential workarounds to this deduction limitation for owners
of pass-through entities, by allowing a pass-through entity to make an
election (PTE tax election) to be taxed at the entity level. PTE tax
elections present state and federal tax issues for partners and
shareholders. Before making an election, care needs to be exercised to
avoid state tax traps, especially for nonresident owners, that could
exceed any federal tax savings. (Note that the Build Back Better Act
proposes to increase the state and local tax deduction limitation for
individuals to $80,000 ($40,000 for married individuals filing separately)
retroactive to taxable years beginning after December 31, 2020. In
addition, the Senate has begun working on a proposal that would completely
lift the deduction cap subject to income limitations.)
Accounting for income taxes – ASC 740 considerations
The financial year-end close can present unique and challenging issues for
tax departments. Further complicating matters is pending U.S. tax
legislation that, if enacted by the end of the calendar year, will need to
be accounted for in 2021. To avoid surprises, tax professionals can begin
now to prepare for the year-end close:
Evaluate the effectiveness of year-end tax accounting close processes and
consider modifications to processes that are not ideal. Update work
programs and train personnel, making sure all team members understand
roles, responsibilities, deliverables and expected timing. Communication
is especially critical in a virtual close.
- Know where there is pending tax legislation and be prepared to
account for the tax effects of legislation that is “enacted” before year
end. Whether legislation is considered enacted for purposes of ASC 740
depends on the legislative process in the particular jurisdiction.
- Document whether and to what extent a valuation allowance should be
recorded against deferred tax assets in accordance with ASC 740.
Depending on the company’s situation, this process can be complex and
time consuming and may require scheduling deferred tax assets and
liabilities, preparing estimates of future taxable income and evaluating
available tax planning strategies.
- Determine and document the tax accounting effects of business
combinations, dispositions and other unique transactions.
- Review the intra-period tax allocation rules to ensure that income
tax expense/(benefit) is correctly recorded in the financial statements.
Depending on a company’s activities, income tax expense/(benefit) could
be recorded in continuing operations as well as other areas of the
- Evaluate existing and new uncertain tax positions and update
- Make sure tax account reconciliations are current and provide
sufficient detail to prove the year-over-year change in tax account
- Understand required tax footnote disclosures and build the
preparation of relevant documentation and schedules into the year-end
Begin Planning for the Future
Future tax planning will depend on final passage of the proposed Build
Back Better Act and precisely what tax changes the final legislation
contains. Regardless of legislation, businesses should consider actions
that will put them on the best path forward for 2022 and beyond. Business
can begin now to:
Reevaluate choice of entity decisions while considering alternative legal
entity structures to minimize total tax liability and enterprise risk.
- Evaluate global value chain and cross-border transactions to optimize
transfer pricing and minimize global tax liabilities.
- Review available tax credits and incentives for relevancy to leverage
within applicable business lines.
- Consider the benefits of an ESOP as an exit or liquidity strategy,
which can provide tax benefits for both owners and the company.
- Perform a cost segregation study with respect to investments in
buildings or renovation of real property to accelerate taxable
deductions, and identify other discretionary incentives to reduce or
defer various taxes.
- Perform a state-by-state analysis to ensure the business is properly
charging sales taxes on taxable items, but not exempt or non-taxable
items, and to determine whether the business needs to self-remit use
taxes on any taxable purchases (including digital products or services).
- Evaluate possible co-sourcing or outsourcing arrangements to assist
with priority projects as part of an overall tax function
If you think your business can benefit or is interested in any of the
above Year-End Planning for Businesses opportunities, BOOS &
ASSOCIATES is here to help! To inquire more information please email us at