The American Institute of Certified Public Accountants (AICPA) submitted recommendations to policymakers this week, urging clarity and simplification in how the Tax Cuts and Jobs Act impacts small business (SMBs) accounting rules. In a letter sent to the Internal Revenue Service (IRS) and the Treasury Department, the AICPA said tax reform legislation must provide clarity in how SMBs approach accounting compliance.
The letter outlined eight recommendations for the Tax Cuts and Jobs Act. They include providing "automatic and simplified accounting method change procedures," and clarifying whether businesses that exceed the threshold for "small business" under the legislation, as they grow in the future, must file accounting method changes. The letter also suggests clarity on whether the legislation's interest deduction limitation is or is not considered a method of accounting, providing relief for SMBs that are "currently on improper accounting methods," and clarity on the definition of "gross receipts" for purposes of qualifying as a small business.
The AICPA urges clarity on the definition of a "tax shelter," clarity on how "Qualified Improvement Property" is treated, and guidance on "tax consequences of changing to the cash method of accounting."
Tax reform has received mixed reactions in the business community, with some analysts concluding that the legislation has not yet convinced businesses to boost investment and spend.
Earlier this year, a report from the International Business Brokers Association (IBBA) found that tax reform is likely to lead to an increase in sales of small businesses. And survey conducted with the Pepperdine Private Capital Markets Project found nearly three-quarters of advisors and brokers predict SMB sales to increase this year. New tax rules lower minimum down payments on small business purchases from 25 percent to 10 percent, the report noted.
“Small business owners seeking to sell their business in 2018 have cause to be bullish,” said Warren Burkholder, CBI, president of advisory group NEVRG, at the time. “With the corporate tax rate dropping to 21 percent and the repatriation of overseas capital, companies will have more capital to allocate to acquisitions. Add to that heavy competition in the marketplace, which means even more companies will be pursuing smaller market transactions.”