B&C Valuation Group - February 2019 Newsletter

FEBRUARY 2019 Newsletter

B&C Valuation Group

The Tax Cuts and Jobs Act (TCJA) is the biggest change to the tax law in over 30 years. This article explains why it's important to consider:

1) how tax reform will specifically affect the subject company's cash flow

2) how management plans to use any tax savings

3) whether management's projections seem reasonable.

A sidebar explains how the new law could also affect a company's tax base (the amount to which new, lower tax rates will be applied).

B&C Valuation Group

Rick A. Tidd

Partner-in Charge: B&C Valuation Group CPA/ABV/CGMA,

CVA, CFF, CITP

David G. Herring

Partner, CPA/CGMA,

CVA, CDFA,

CFF

ASSOCIATIONS

3 Questions to ask about Tax Reform when valuing a business?

In every business valuation assignment, the expert must consider the current regulatory environment. The 2017 Tax & Jobs Cuts Act is the biggest change to the tax law in over 30 years. It will lower taxes for many businesses and is expected to provide various growth opportunities.

Now that we are adapting to these new laws, when valuing a business under the new tax law, it's important to ask these questions.

How much tax will the company save?

The new tax law is known as the Tax Cuts and Jobs Act (TCJA) for a reason: It cuts the corporate tax rate to a flat 21% and eliminates the 20% corporate-level alternative minimum tax. Under prior law, C corporations and personal service corporations were taxed based on a graduated rate scale that topped out at 35%.

To help level the playing field, the new law also allows pass-through businesses - such as S corporations, limited liability companies, partnerships and sole proprietorships - to deduct 20% of qualified business income starting in 2018. This deduction is subject to various restrictions based on income levels and the entity's W-2 wages. In addition, this break isn't available for certain types of service businesses at higher income levels.

Experts must consider the full effects of reduced federal tax rates and other business-related tax law changes when valuing a business interest. (See "Beyond tax cuts.") State taxes may also be affected by changes in the federal tax laws.