Accounting Packback

 Topic: The Corporate Income Tax currently has a flat tax rate of 21%.  Before 2018, the rates were progressive, ranging from 15% to 35%.  Discuss issues related to the rate structure for the U.S. income tax system, including what type of rate structure you believe is best, and why.

WHAT TO DO:

1) Ask an open ended question and write a response to that question in less than 300 words. And cite your sources

2) Respond to two other posts and cite your sources and have a thesis question for each response.

Posts to respond to:

A)

Would it be beneficial for states to conform to federal Section 179 and Bonus Depreciation (Section 168(k)) rules?

While many states are actively moving in the direction of the federal government on Section 179 and Bonus Depreciation rules, there are still a number of states that do not accept a portion or all of Section 179 and Bonus Depreciation. For example, Pennsylvania, prior to the TCJA (Tax Cuts & Jobs Act of 2017), required all Bonus Depreciation taken be added back to income, whilst allowing a separate deduction of 3/7 the amount of the Bonus Depreciation. There are also many of other states that limit the amount of Section 179 and/or Bonus Depreciation. Would it be ideal for states to conform to federal rules regarding Section 179 and Bonus Depreciation? Who would this positively/negatively affect? Will we ever see every state conform to the federal regulations?

B)

Do you think that the NOL carryback rule should have been eliminated under the Tax Cuts and Jobs Act of 2017 or brought back under the CARES Act taking into account the change in tax rates?

Under the Tax Cuts and Jobs Act of 2017, tax rates dropped to a flat 21% versus progressive rates of 15-35% prior to 2018. This change in the tax rate structure affected numerous items. One item was the NOL carryback rule. The NOL carryback rule of two years was eliminated. However, an NOL deduction is now allowed to be carried forward indefinitely instead of 20 years under the old rules. The elimination of the carryback rule has prevented taxpayers from obtaining quick cash refunds according to the Journal of Accountancy article by Richard Ray dated November 1, 2020. Under the CARES Act, the carryback rule was reinstated by allowing a five year carryback for NOLs generated in 2018, 2019, and 2020. According to the article, businesses will most likely have incurred losses during COVID and would be able to use an NOL carryback to a previous year and get a quick cash refund. However, starting in 2021, the NOL rules under the TCJA were reinstated and carrybacks are no longer allowed again. Should the carryback rule be eliminated or is it better to get an indefinite carryforward? Also, remember to take into account the prospect of having different rates and different income limitations in different years per the tax laws. Tax rates were higher under pre-TCJA and refunds of those years would be higher under a carryback instead of a carryforward at 21%. Please research and comment on the pros and cons of no longer having an NOL carryback benefit and what angle there might have been in changing these rules in regards to tax revenues under the different Acts due to the change in tax rates and also IRS workloads.