Today I dive into the topic of tax reform with my guest, James Markham. James is the Global Tax Middle Market Leader for EY (Ernst & Young Global Limited.) We discuss this exciting time in U.S. business history. Some people are thrilled about the upcoming tax reform (it takes effect this year) and others are scared stiff. James and I try to take some of the confusion and misunderstandings out of the new tax laws. So, hopefully, we are able to ease your mind about the new changes.
If you have plans to sell your company this year or you are just a little nervous about the 2018 tax reform, join us to get some perspective!
You will learn about:
- What does tax reform mean for U.S. business owners?
- Where to go to get accurate information about the 2018 tax reform.
- Why you need to check, check, and triple check your analysis to make the right decisions for your business.
- What the tax reform means for PE firms (private equity.)
- The changes that will change “the game” in the long run.
- Expect a boom in international business interest.
- Why this is a good time to review your current business deals and revise them accordingly.
- Why high tax areas will suffer from this new tax reform.
- New financial caps that will take effect with the new reform.
- Make sure you are ready!
- The 3 highlights James has for the audience.
This week we’re talking taxes. Typically on the show, I like to cover topics that help owners survive the selling process, particularly in terms of what comes next. Today, we’re going to talk about how taxes impact the sales process, why making a quick choice to save some money now could negatively impact your sale price and what you can do to minimize the risks of changing your tax strategy.
2018 Tax Reform: Exceptions, Exemptions and Expenses
Tax laws have changed, and we need to keep up. While some changes are exciting and titillating, they are rather complicated. Things cannot continue as they were, right down to that weekly round of golf you play with your top clients on Thursday afternoons. Essentially, you are no longer going to be able to entertain your clients like you used to.
The new tax laws stipulate that you can expense meals, but not the entertainment that often goes alongside them. While many of us groan at the initial thought, the impact is actually much greater than simple inconvenience on our parts, personally, as the business owner. While trying to cater to high-end clients by taking them to one of the top golf courses in the area or out on the boat along the beach is very common and oftentimes expected on the clients’ part, you can no longer expense this. So your golf club membership, sail boat, box seats, etc. now much be paid out-of-pocket. Can you still afford these expenses? Will the businesses you used to frequent (and pay for out of the company’s coffers) survive after having lost your usual patronage?
One other change that will have a definite impact on your business is the ability to 100% expense a purchase immediately—but is that going to be the game-changing tax break you’re looking for? Well, maybe. But maybe you’d rather have the tax break over the course of several years. On either side, your expensing choice comes down to what you and your business need.
The impact of these changes will be far-reaching. While it’s not possible to predict all of the effects we will see on our community, or our country, we can at least better inform ourselves and possibly protect the integrity of our businesses.
Making Sense of the 2018 Tax Reform Chaos
Congratulations, you have entered the bonus round where every question comes quickly and wrong answers are penalized heavily. Before now, you’ve been able to expense nearly anything in the name of your client; now, you need to reign in your entertainment expenses if you want to avoid nasty fees when you hand in your deductions next year. There is a way around these nasty expenses—one which will allow you to find the loopholes.
Hire a Tax professional!
As James self-deprecatingly said, “Now is a good time to be an accountant.” You need to be in contact with the people who understand the law and work with it the closest. James and EY actually work with people who worked at the IRS and who understand the changes from the ground up. While not every accountant can claim that level of intimacy, all have more knowledge about what your taxes can do for you and can guide you through the tricky and complex wording of the new tax laws.
You’ll want to do this for two reasons: one, on a personal level, you’ll want to protect yourself at tax time and ensure you’re doing everything you can (and claiming everything you can) to give yourself the best outcome possible—your tax rate has dropped from 35% to 21% as an individual, and while that is good on its own, it can also be more multilayered; and two, on a business level, you’ll want to keep your business in as good of standing as possible—particularly if you’re looking to sell in the next 3-5 years.
James has some further cautionary points for business owners looking to sell in the next 3-5 years. Sometimes changing how you operate (S-corp or C-corp, for example) can impact your selling price because your taxation (and value or cash flow) will change. This is a very intricate bit of taxation law, however, and the best people to help you figure out what’s best for you is to talk to your accountant and your M&A intermediary.
Your accountant can help you structure your books, based on what are the best taxation options available, and your M&A advisor can show you where to dial in your efforts to make your business more appealing.
Before making any major moves, one way or the other, you should consult with your advisors so you don’t make a costly mistake. We can avoid some stiff fees or taxes if we structure our taxes properly, in advance. Until these changes are second nature, we need to be looking to those who have the most experience and industry expertise to give us better footing for the long-run.
Takeaways:
- The new ability to make a 100% expense purchases will be a huge game changer in business! Most of these changes will shake up the business world and you need to be prepared for them.
- Don’t make a change to your business structure just for a tax benefit. A sudden change can make you undesirable to outside buyers.
- Don’t make a major business decision or change without consulting a professional tax expert. You need to plan your next move, don’t try to navigate this change with your gut. Plan, plan, plan, and plan so more! Plan until you are sure you have a solid strategy going forward.
Links and Resources:
About James:
James Markham is the EY Global Tax Middle Market Leader, after serving as the EY Global Tax Leader – Strategic Growth Markets for the past few years. He has 33 years of experience and concentrates on tax, accounting for income taxes, acquisitions, joint ventures and foreign expansion planning. He helps companies with tax minimization strategies, especially in mergers and acquisitions and international expansion.
James has a master’s degree in Tax and an undergraduate degree in Accounting from Brigham Young University. He is a member of the American Institute of CPAs.