The TCJA reduced the graduated system of taxes for C Corporations (versus Sub Chapter S Corporations) from a max rate of 39% to 21%. The Obvious – a Reduction in the Federal Corporate Tax Rate from 39% to 21% The introduction of the Qualified Business Income DeductionĪll these provisions will have both a positive and potentially negative impact on business value.Increased deductions for Section 179 and Bonus Depreciation.Limitations on the deductibility of operating losses.Lower Federal Corporate Tax Rate from a maximum rate of 39% to 21%.The significant changes to the past tax regime can be simplified to the following: We present below a summary of the changes and the potential impact on business value – we have also prepared a more detailed presentation that dives deeper into the various implications of the TCJA for business owners and how it impacts value.įor a copy of the presentation please forward your request to Changes Enacted Under TCJA That Impact Business Value Conversely, deferred tax liabilities may cause the company to incur higher-than-expected effective income tax rates in the future. To the extent that a business has net operating losses and other deferred tax assets, the company’s effective tax rate may be lower than published income tax rates. Predicting a company’s future tax rate can be somewhat tricky, however and has been made “interesting” by the TCJA. To state the obvious, higher tax rates, lower cash flow the lower the tax rates, the higher expected cash flows to owners.Īnd as mentioned above while historical returns or cash flows may be important it is the ability to create and sustain cash flow that ultimately matter! Investors want to know how much a company expects to earn in the future. And the one variable that potentially increases or decreases cash flow is the applicable tax rates. Ultimately, the one variable that needs to be present for investors is the expectation of cash flows, either currently or in the future. Rarely does a valuation analyst consider the cost approach as it is mostly applied to non-operating businesses, such as asset holding companies – think of a real estate holding company as an example. If you were buying a private business interest, would taxes affect how much you’d be willing to pay? Of course, investors consider a wide range of tax issues - such as expected federal and state income tax rates, deferred tax assets and liabilities, and built-in capital gains taxes - when evaluating investment options.īusiness valuation analysts often use economic returns as the basis for valuing a business interest under the income or market approaches. When valuing a private business interest, experts try to think like prospective investors.
0 kommentar(er)
