The tax bar is abuzz with the talk of tax reform. Clients are in modeling purgatory, trying to calculate its effects and plan for the future. Public accounting firms are suggesting how to accelerate deductions in 2017 to take advantage of the massive tax rate decline in 2018. Now more than ever, there are substantial economic incentives to accelerate deductions in 2017 and defer income until 2018. Yes, it’s beginning to look a lot like Christmas and the end to what bodes to be a historic year for federal tax!
Not to be a Grinch, but consider the following as you prepare for year end. If you attempt to accelerate any deductions, make sure to have a complete, “audit-ready” file if the Internal Revenue Service (IRS) decides to test your position. Consider how you will protect against the assertion of any penalties; typically, your ticket to get of out penalty “prison” is to maintain proper substantiation and to establish a reasonable cause defense. An opinion of counsel is one method to meet your burden of establishing that defense. It is always better to be proactive and anticipate an IRS audit than to be reactive and try to compile the proper documentation after-the-fact.