On December 18, President Obama signed into law the Protecting Americans from Tax Hikes (PATH) Act of 2015, extending many of the expired business and individual tax provisions, and most notably, making the temporary research tax credit permanent for taxable years beginning after December 31, 2014. Further, the Act provides the following benefits for eligible small businesses effective for taxable years beginning after December 31, 2015:
Financial Statement Impact
Taxpayers should generally recognize the effect of tax legislation in the period of enactment. Thus, for example, calendar year taxpayers should capture the impact of the tax legislation in the fourth quarter as part of the normal accounting process of determining the year-end current and deferred tax accounts.
If the company is in an interim period prior to the fourth quarter, the effective tax rate (“ETR”) should be updated for the change in legislation for both current and retroactive impact. The updated ETR should then be applied to the year to date income and the cumulative amount of expense or benefit should be adjusted for the current year to catch up the interim to date period for the change in the tax law.
For additional clarification or help understanding how these tax law changes could affect your organization, contact David Lee, Tax Partner ([email protected] or 408-200-6402).
December 23, 2015