Running Head: SHORT PAPER 1
Short Paper on First Look at the Tax Cuts and Jobs Act of 2017
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The Tax Cuts and Jobs Act (TCJA) is a rule that came into effect in the year 2017.
Before being implemented, the rule gained considerable attention since it would reduce the tax
incentives for business entities for incurring debt (Gaertner et al., 2020). Hence it would result
in a reduction of corporate debt between 7 and 9 %. Since every individual has distinctive
points of view, the change in leadership is likely to have an impact on how the tax landscape
evolves and tax rules are updated. It is instrumental for tax professionals and practitioners to
have up-to-date knowledge and understanding of the latest tax regulations.
On an annual basis, new tax rules and regulations come into existence. The lack of
understanding of the latest tax rules by businesses may give rise to compliance concerns which
may lead to penalties or fines and other legal repercussions. It is the responsibility of CPAs
and tax professionals to remain updated with current changes. There are several sources that
can help to remain abreast of the current tax situation. By signing up for NJ Tax e-news, it is
possible to get the latest information on tax that is applicable in New Jersey state. In addition
to the latest tax-related news, it is also possible to have access to former e-news content. In
order to stay updated about the current tax situation, users have the option to access the IRS
website. There is an option to sign-up for E-news as well. By signing up, users can gain access
to a plethora of information that can help them understand how the tax landscape is
undergoing change. Thomas Reuters Checkpoint acts as another vital source that can be used
by tax professionals to access sources relating to taxation, auditing, accounting, etc. (Thomson
Reuters, n.d.).
Interest deductibility is the ability of a business entity to reduce its taxable income by
subtracting the interest payments that have been made on borrowed funds. By allowing
interest deductions, the borrowing technique gets an unfair advantage that can be used over
other methods to generate funds. Currently, borrowing or debt financing has become a
common practice that is adopted by corporates for raising capital. There are other options as
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well, such as the sale of shares, issuing corporate bonds, etc. to raise capital. Businesses need
to pay taxes on their earnings which may be offset by the expenses or interests that have been
incurred. The exclusion of interest deduction would lead to the violation of the principle of tax
neutrality (Elkins, 2019) if no other alterations have been made to the tax system. This is
because it can decrease the cost of capital and deter investment. a
Based on the TCJA Act of 2017, starting from 2018, businesses that are covered under
IRC Section 163 (J) will face a new limitation pertaining to business interest expense. They
will be eligible to deduct business income each year that does not exceed the sum of their
business revenue, 30 % of adjusted taxable income, and floor plan financing interest (The CPA
Journal, 2018). The changes that have been made have the potential to increase the overall cost
of the debt that is incurred by companies. The entities that are covered under Internal Revenue
Code (IRC) Section 163 are small business entities, employees, real property trade, and utility
disposal and distribution businesses.
The institutions such as banks and financial institutions that are involved in
considerable borrowing are likely to be impacted by the change. The alterations to
deductibility of interest may impact the tax burden on financial institutions. However, if
interest income is entirely taxable, the tax burden may be lower for these undertakings. Banks
and financial entities have the option to make adjustments to their loan offerings and interest
rate that is charged so that they can adapt to the evolving tax landscape. The industries that do
not depend on debt financing are likely to be affected by the tax law to a limited extent.
The changes that have been introduced by the Tax Cuts and Jobs Act (TCJA) have the
potential to influence how business entities make the decision to issue debt in the future. It
may also impact how companies plan to deal with their existing debts. Since the law is likely
to result in the increase in the cost that is incurred by businesses for borrowing purposes, the
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attractiveness of borrowing for firms may decline. Moreover, it offers little opportunity for
firms in the U.S. to relocate outside the nation to tackle the rise in debt cost. a
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Reference
Elkins, D. (2019). A Critical Reassessment of the Role of Neutrality in International Taxation.
Nw. J. Int'l L. & Bus., 40, 1.
Furman, J. (2008). The concept of neutrality in tax policy. testimony before the US Senate
Finance Committee, hearing on Tax: Fundamentals in Advance of Reform.
Gaertner, F. B., Lynch, D. P., & Vernon, M. E. (2020). The effects of the Tax Cuts and Jobs Act
of 2017 on defined benefit pension contributions. Contemporary Accounting
Research, 37(4), 1990-2019.
Thomson Reuters Checkpoint Solutions for tax, Accounting & Audit. Thomson Reuters
Checkpoint solutions for tax, accounting & audit | Thomson Reuters. (n.d.).
https://tax.thomsonreuters.com/en/checkpoint#:~:text=Checkpoint%20provides%20fa
st%20access%20to,news%20updates%2C%20and%20marketing%20resources.
First look at the tax cuts and jobs act of 2017. The CPA Journal. (2018, August 14).
https://www.cpajournal.com/2018/08/06/first-look-at-the-tax-cuts-and-jobs-act-of-
2017/
