Taxpayer Elections to Consider Prior to Year End

As a reminder, certain elections and/or company policies must be in place prior to December 31, 2018, in order to be applicable to calendar year tax returns and financials. Taxpayers should consider if they have the appropriate elections/policies in place or need to revise prior to December 31, 2018. Below are some elections/policies that are relevant to many of our clients that they may want to consider.

GILTI Accounting Policy Elections

ASC 740 does not currently directly address the accounting for GILTI. As a result, the FASB staff concluded in FASB Staff Q&A #5 that companies can make an accounting policy election to either:

  1. Treat GILTI as a period cost if and when incurred, or
  2. Recognize deferred taxes for basis differences that are expected to reverse as GILTI in future years.

If a company elects to treat GILTI as a period cost, there is a supplemental accounting method election to make in determining if a valuation allowance is required for some or all of the company’s NOL carryforwards as companies in a loss position will not be allowed a Sec. 250 deduction or foreign tax credit (FTC) on GILTI inclusions and instead will be utilizing NOL carryforwards to offset any GILTI inclusion. FASB allows a company to take one of two approaches in assessing a valuation allowance on NOLs:

  1. Incremental Cash Tax Savings Approach – The Company compares what it expects the incremental cash taxes to be with and without the NOL. The difference would be the realizable benefit of the deferred tax asset.
  2. Tax Law Ordering – The Company looks to tax law ordering to determine whether the existing NOL deferred tax asset is expected to be realized. Under this approach, the fact the company will not be able to utilize the Sec. 250 deduction and FTC is irrelevant.

Companies will need to disclose their policy elections in their audited financial statements and the accounting policy elections must be in place by December 31, 2018, for calendar year companies, in order to be effective for 2018 and future years. 

De Minimis Safe Harbor Expensing Elections

As part of the final tangible property regulations, taxpayers are required to make annual elections related to their expensing policies. The de minimis safe harbor election requires a written policy to be in place by the beginning of the taxable year. This means that the written policy must be in place by December 31, 2018, for calendar year taxpayers planning to make the de minimis safe harbor election on a 2019 tax return. 

In addition to taxpayers with audited financial statements, this also applies to taxpayers without audited financial statements, taxpayers with Schedule C business activity and taxpayers with rental real estate activity. 

Deductibility of Accrued Bonuses

In order for accrual basis taxpayers to take an income deduction for bonuses as of the end of its tax year, the bonuses must be fixed and determinable as of the end of the tax year and paid within 2 ½ months. Many taxpayers require employees to be employed on the payment date of the bonus or do not determine the amount of the bonus or bonus pool until after year end. As such, the bonus is not fixed as of the end of the tax year.

Taxpayers should review their current bonus policies to see if they meet the requirements to be deducted as of the end of the tax year. If they do not, then the taxpayer may need to have a Board resolution in place by the end of the year (December 31, 2018 for calendar year taxpayers).

All the best


Andersen Tax LLC

Andrew Kyriacou - Andersen Tax

125 High Street, 16th Floor Oliver St Tower, Boston, MA 02110

(Tel) 617-292-8402,  (EFax) 617-517-7502

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