2018 Tax Considerations for Financial Services Businesses

2018 Tax Considerations for Financial Services Businesses

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2018 Tax Planning Considerations Financial Services Businesses Should Know

By Gary G. Wallace, CPA | Financial Services Industry Team

A year ago, everyone was anxiously reviewing Tax Reform and how it might impact financial services businesses.  Almost a year later, the 2017 Tax Cuts and Jobs Act (Tax Act) is in full swing and financial businesses are observing and administering the many differences. Whether taxes are up or down is very dependent upon the specific facts and industry segment. What we do know is that the Tax Act had substantial effects and financial service companies’ tax situations have changed.


Tax Rate and Net Operating Loss Changes

No matter what the business, tax rates changed with reductions in corporate and individual tax rates. The decreased tax rates may be seen as pro-business beneficial, but there could be unanticipated consequences because of certain limitations and the additional increased compliance with the provisions.

For corporations, net operating losses (NOLs) were eligible to be carried back under prior law. For post-2017 NOLs, the Tax Act now only allows tax carry forwards. While this may impact many operating businesses, it also reduces a source of funds for financial service businesses that may have looked to the cash flow from carrybacks to cover debt service. Similarly for individuals there is an “excess business loss” limitation. This part of the new tax law imposes a limitation on the amount of deductions that can be taken attributable to a trade or business. The excess losses (amounts in excess of income) are limited to 500,000 dollars for a joint tax return. The losses that are disallowed are treated as an NOL carryforward.

Interest Deduction Additional Limitations

Likewise, interest deductions now have additional limitations. Under prior law, business interest was generally fully deductible. Under the Tax Act, business interest deductions are limited to 30 percent of adjusted taxable income. Adjusted taxable income is a concept similar to tax-like ebit(da). For financial service businesses involved with lending money, these limitations may have an impact on lenders, both directly as borrows may choose to borrow less and indirectly to the lenders as there may be less cash flow to repay because of a current tax cost. The rules do not apply to small taxpayers, defined as average gross receipts of less than 25 million dollars.

Financial Service Businesses with Cross Border Operations

For businesses with cross border operations, the Tax Act has led to substantial changes. Although some generally only impacted larger businesses, there were substantial impacts for foreign activities. With such acronyms as GILTI, FDII, and BEAT, the compliance for U.S. taxpayers with global activities is even more complicated as Congress attempted to curb base erosion, anti-abuse tax regimes and tolls on repatriations. For those financial services business that have foreign operations or have clients with foreign activities, there is an additional focus on such businesses’ after tax cash flow.

Investment Management Businesses

For financial services businesses such as asset managers, other tax considerations are now more relevant. From extending capital gains holding periods for fund managers, to elimination of individual miscellaneous itemized deductions, to understanding new opportunity zone credits, financial managers are adjusting to a new tax jargon and planning.

What all this means is that we are living through the most significant tax reform since 1986 and it will have impacts for the financial services industry in many ways. Simply put….it’s complicated.


Keiter’s team is focused on helping registered investment advisors, broker-dealers, and financial services firms succesfully navigate the new tax law changes. Questions on tax reform’s impact on your business? Contact our team or Email | Call 804.747.0000. We are here to help.

Source: IRS

Additional accounting and tax resources:


The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


About the Author

Gary provides tax services to public and private entities and their owners in a variety of industry segments, including manufacturing, retail, real estate, and financial services. Gary has significant knowledge and experience in individual taxation, business taxation, including C and S corporations and partnerships. He advises clients on all aspects of tax matters, including tax accounting methods, multi-state tax matters, mergers and acquisitions, income tax accounting and representation with tax authorities. He is the Managing Partner of the Firm.

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