Impact of the Tax Cuts and Jobs Act on Accounting for Deferred Income Taxes

• Author: Thomas H. Oxner,Karen M. Oxner,Ashley D. Phillips
• Published date: 01 April 2018
• DOI: http://doi.org/10.1002/jcaf.22339
• Date: 01 April 2018

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© 2018 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22339

Impact of the Tax Cuts and Jobs

Act on Accounting for Deferred

Income Taxes

Karen M. Oxner, Thomas H. Oxner, and Ashley D. Phillips

INTRODUCTION

The Tax Cuts and

Jobs Act signed into

law December 22,

2017 contains argu-

ably the most com-

prehensive changes

made to the United

States tax law in the

last 30 years. Among

its provisions, it

reduces significantly

the corporate income

tax rate. Generally

accepted accounting

principles (GAAP)

require comprehensive account-

ing for income tax effects in the

financial statements, including

recognition of deferred income

tax assets and liabilities when

appropriate. Legislated tax

rates are a major determinant

of the amounts of these tax-

related assets and liabilities.

This article offers an overview

of the possible impact of the

tax rate change on financial

reporting for deferred tax

accounts. A review of financial

accounting rules for deferred

taxes is provided, followed by

analysis of tax reporting by the

thirty Dow Jones Industrial

Average (DJIA) companies

based on their 2016 annual

reports. The impact of the new

tax rates on financial reporting

for deferred income tax assets

and liabilities, as well as the

related effect on net income,

are explored. Finally, recent

guidance from the Securities

and Exchange Commission

regarding implemen-

tation of the new

tax law into periodic

financial reports is

summarized.

TAX CUTS AND

JOBS ACT

Prior to the

effective date of the

Tax Cuts and Jobs

Act (“Act”), the

United States had

the highest statutory

corporate tax rate

among nations in

the Organization for Economic

Cooperation and Development

(OECD). The Act permanently

reduces the corporate tax rate

in the United States from a

maximum federal rate of 35%

to a flat federal rate of 21%,

effective January 1, 2018. The

Act lowers corporate tax rates

in hopes of stimulating the

U.S. economy. Since firms will

pay less in taxes, presumably

they will have more money

to spend on research and

The recently enacted Tax Cuts and Jobs Act lowers

significantly the corporate tax rate, among other

provisions. Accounting for deferred tax assets and

liabilities requires that effects of a tax rate change

on existing deferred tax assets and liabilities be

brought into income in the period of enactment.

This article provides an overview of tax accounting

for financial reporting, as well as analysis of the

existing net deferred tax position of the 30 Dow

Jones Industrial Average companies for 2016. The

impact of the reduced tax rate on both the balance

sheet and income statement are estimated in the

article. © 2018 Wiley Periodicals, Inc.

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