By Mark D. Mishler, CPA
February 7, 2018
P.L. 115-97, known as the Tax Cuts and Jobs Act, which was enacted Dec. 22 and mostly took effect Jan. 1, creates lower effective corporate income tax rates, and, as a result, most companies will report higher future net income in 2018 and beyond.
Companies with net deferred tax assets, however, will report unexpectedly high effective income tax rates in their 2017 calendar fourth quarter compared with their effective income tax rate for the first nine months of 2017 due to the reduction in the income tax rates on the deferred income tax assets. (There is no cash impact because changes in deferred tax balances are noncash items added back to net income in computing cash flows from operating activities.)
Examples of companies recently reporting 2017 fourth-quarter income reductions from the new tax law are Citigroup ($22 billion tax charge), Johnson & Johnson ($13.6 billion tax charge), Goldman Sachs ($4.4 billion tax charge), and BP PLC ($1.5 billion tax charge). More...