• Aligning international tax strategy with global supply chain planning helps reduce tax exposure, capture incentives, and increase operational agility.

• Ignoring exit taxes, transfer pricing, or cross-border compliance risks can create multi-year tax liabilities, penalties, and restructuring costs.

• Involving tax leaders early in global supply chain restructuring leads to smarter decisions, improved timelines, and long-term business scalability.

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In today’s dynamic global business environment, aligning your organization’s international tax planning with supply chain planning strategy isn’t just a best practice — it’s essential. From shifting trade relationships and tariffs to increased scrutiny from global tax authorities, your company’s ability to make tax-informed supply chain decisions can directly impact cash flow, risk profile, and competitive positioning.

Here’s how your tax and operations leaders can collaborate to build a globally agile structure, and why international tax strategy must be at the core.

Why International Tax Strategy Must Drive Global Supply Chain Decisions

Mid-market organizations are rethinking their operational footprint — reshoring, nearshoring, or diversifying supplier bases. But without a clear international tax lens, these shifts can trigger unintended consequences: exit taxes, loss of treaty benefits, or transfer pricing risks.

A tax-aligned supply chain strategy allows you to:

• Forecast and manage global tax liabilities

• Capture incentives and avoid inefficiencies

• Make faster, more informed decisions across jurisdictions

Integrate International Tax Early in the Planning Process

Waiting until after operations moves are underway can leave your business with a fragmented tax structure that requires costly remediation. This is especially critical for mid-market companies operating across the U.S., EMEA (Europe, the Middle East, and Africa), or APAC (Asia-Pacific) regions, where cross-border structuring can create unexpected tax burdens. Tax should be involved from the outset — modeling scenarios across jurisdictions, projecting costs, and identifying risk exposure.

For example:

• Moving production from China to Mexico might avoid certain tariffs — but could expose your business to exit taxes in China or permanent establishment risk in Mexico.

• Relocating intellectual property (IP) from Ireland to the U.S. might trigger a deemed disposal event under local exit tax regimes.

Technology platforms and predictive models can help tax teams simulate these impacts before major decisions are finalized.

Strengthening Transfer Pricing and Global Compliance

Global tax authorities are tightening enforcement — especially around transfer pricing and cross-border restructurings. If your tax structure no longer reflects your actual operations, you may face:

• Double taxation

• Disallowed deductions

• Penalties and disputes

Update your transfer pricing documentation to reflect the new supply chain model. Intercompany agreements, economic analyses (including IP valuation), and jurisdictional reporting must all align with your post-transition structure.

Unlock Incentives Through Coordinated Strategy

Supply chain shifts aren’t just about avoiding risk — they’re also an opportunity to capture new value. Jurisdictions including the U.S., Canada, Mexico, and certain European Union countries offer targeted tax incentives for reshoring, green investment, R&D, or job creation.

If these incentives aren’t launched early in planning, your business could miss out. Tax should coordinate with operations and finance teams to explore:

• U.S. federal and state credits for manufacturing investment

• R&D credits tied to newly localized functions

• Foreign tax credits or deferrals available in new jurisdictions

Create a Globally Scalable Tax Playbook

Reactive tax planning doesn’t scale. As your organization enters new markets, integrates M&A targets, or adds new suppliers, your international tax model must be flexible and supported by a clear global tax governance framework.

A forward-looking playbook helps you:

• Align tax structure with business decisions

• Build global tax governance into location changes, IP moves, and new legal entities

• Reduce friction during rapid growth or operational transformation

The Path Forward: Strategy, Agility, and Risk Reduction

International supply chain restructuring can unlock efficiency, improve margins, and reduce geopolitical exposure — but only if tax is at the table from the start.

Organizations that treat tax as a strategic partner rather than a compliance function are better positioned to navigate volatility and create long-term value.

How MGO Can Help

At MGO, we help companies navigate the complexities of global tax strategies and cross-border operations. From international structuring and transfer pricing to tax technology and incentive optimization, we serve clients across manufacturing, life sciences, technology, and more.

We work closely with CFOs and tax executives to align tax planning with business transformation — supporting global agility, regulatory compliance, and strategic growth. Let’s talk about how your international tax strategy can support your global operations.

The post How to Align Your Global Supply Chain and International Tax Strategy appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Cross-border supply chain changes can trigger exit taxes, compliance penalties, and tax inefficiencies if not planned with international tax in mind.

• Proactive coordination between tax and operations helps reduce global tax exposure, unlock incentives, and speed of execution across jurisdictions.

• Country-by-country reporting (CbCR), transfer pricing alignment, and entity structuring are critical to avoiding double taxation and audit risk.

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Global supply chain changes are rarely just operational — they’re deeply connected to international tax exposure. From exit taxes and transfer pricing risks to missed incentives and compliance hurdles, tax leaders must be part of the decision-making process from day one.

6 Supply Chain and International Tax FAQs

In this FAQ, we answer the most frequent questions our clients ask when planning cross-border restructurings, relocations, or supplier changes — so your business can move faster, smarter, and with fewer tax surprises.

1. What are the international tax risks when shifting supply chain operations?

Relocating manufacturing, coordination, or key functions across borders creates exposure to multiple tax regimes. Common risks areas include exit taxes, transfer pricing, permanent establishment issues, and customs duties. Without early tax planning, these costs can result in long-term liabilities or missed opportunities.

2. How do exit taxes work, and when do they apply?

Exit taxes are levied when valuable functions, assets, or risks — such as intellectual property (IP), staff, or customer relationships — are moved between countries. For example, transferring IP from Ireland to the U.S. may trigger a deemed disposal under Irish tax law. These taxes can be significant and must be modeled early in any restructuring.

3. What should I know about transfer pricing when moving suppliers or functions?

Transfer pricing must reflect your current business operations. If you shift suppliers, relocate production, or move functions without updating your intercompany pricing, tax authorities may challenge the arrangement — leading to adjustments, penalties, and double taxation. All intercompany agreements and transfer pricing documentation must align with your post-change structure.

4. Are there tax incentives available when reshoring or nearshoring operations?

Yes. Countries such as the U.S., Canada, Mexico, Ireland, and Singapore offer targeted tax credits and incentives for domestic investment, clean energy transitions, and R&D localization. Examples include:

• U.S. federal/state manufacturing credits

• Job creation and infrastructure grants

• R&D and capital investment incentives

However, these must be planned early to capture their full value.

5. How can technology help manage international tax complexity?

Tax technology platforms help model jurisdictional impact, manage data for compliance reporting (like CbCR), and simulate the tax effects of operational changes. Integrated enterprise resource planning (ERP) and tax systems also improve visibility and reduce risk in real-time decision-making.

6. What role should international tax play in supply chain strategy?

International tax teams should be involved from the start of any supply chain realignment. Embedding tax early helps you find risks, unlock incentives, and structure deals for long-term compliance and flexibility. A reactive approach often results in avoidable costs, delays, and exposure.

Next Steps for Smarter Global Planning

Successfully navigating international tax risks requires more than compliance — it takes a forward-thinking approach aligned with your global operations. At MGO, we support CFOs and tax leaders with international tax planning, transfer pricing analysis, and incentive identification to help reduce exposure and drive business agility.

Learn more about our International Tax and Transfer Pricing services or contact us to discuss how we can support your global growth strategy.

The post Frequently Asked Questions About International Tax and Supply Chain Realignment appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The party responsible for paying the tariff determines if the charge is included in the taxable sales price under state sales and use tax rules. 

• Sales tax treatment of tariffs varies by state, making it essential for businesses to stay updated on local laws to remain compliant and avoid penalties. 

• Businesses can reduce sales tax exposure by strategically structuring transactions to exclude tariff costs when legally allowed by state tax guidance. 

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Tariffs are not new, but dramatic increases in their rates have drawn attention to them.  

To mitigate the effects of those levies, some businesses have chosen to separately state tariff-related surcharges on their invoices, raising questions about whether such separately stated charges are subject to sales tax. 

While the inclusion of tariffs in the sales tax base varies across states, a common consideration is which party bears responsibility for the tariff. If the seller is the importer and passes the tariff cost to the consumer, that cost generally is included in the taxable sales price; however, if the purchaser is responsible, the tariff often is not included. Although many states have yet to provide specific guidance on this topic, some have addressed it.  

Consider some illustrative guidance from South Carolina and New Jersey. 

In 2020, South Carolina specified in Rev. Rul. 20-4 that for sales and use tax purposes, when the purchaser is the importer and therefore personally liable for the tariff, the cost of the tariff is not included in the gross proceeds of sales or the sales price. That is because the purchase of the item and the purchaser’s payment of the tariff are two separate transactions.¹ The purchaser’s sales and use tax is based only on the gross proceeds of sales or the sales price of the transaction with the seller. It does not include the cost of the tariff the purchaser pays to the federal government. 

If someone other than the purchaser is responsible for the tariff (such as when the seller is the importer and any or all of the cost of the tariff is recovered from the purchaser), the charge is includable in the gross proceeds of sales or the sales price. It also is subject to sales and use tax unless the retail sale of the tangible personal property is otherwise exempt. 

In May, New Jersey published guidance on the sales tax treatment of tariff markups. The guidance states that if a seller passes tariff costs to the consumer, the charges are subject to sales tax as part of the taxable sales price, even if the purchase invoice separately states the tariff. To illustrate that concept, the guidance offers the following example: 

If the U.S. government imposes a tariff on furniture imported from another country, that tariff is passed along to the furniture seller. A seller may increase the sales price of the furniture sold to customers to maintain its profit margins. If the seller marks up the price of the furniture, even if it is billed as a separately stated fee, the increased cost and/or fee is subject to Sales Tax since it is part of the taxable sales price. 

Understanding the impact of sales tax and tariffs across states requires careful consideration of which party bears the responsibility for the tariff and how that is reflected in the taxable sales price. The variability in state regulations means businesses must stay informed about local tax laws to help ensure compliance and refine their financial strategies. As demonstrated by the examples from South Carolina and New Jersey, whether the seller or purchaser is responsible for the tariff can significantly affect the tax implications.  

Insight 

For companies and consumers alike, evaluating the benefits of being the importer of record for large purchases could offer tax advantages by excluding tariff costs from the taxable base. Ultimately, navigating the complexities of sales tax and tariffs demands a proactive approach to understanding state-specific guidelines and leveraging them to mitigate financial effects.  

Written by Steven C. Thompson and Gregory Devlin. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

Navigating Sales Tax and Multistate Challenges with Confidence 

At MGO, we help businesses manage the complexities of sales tax, tariffs, and multistate compliance through tailored guidance and strategic planning. Our State and Local Tax (SALT) professionals work across industries like manufacturing, retail, and technology to address shifting regulations, reduce risk, and improve tax efficiency. Backed by deep technical experience and real-world insight, we support organizations in making informed decisions that align with their growth and compliance goals. Contact us to learn more.  

The post Sales Tax and Tariffs: Understanding the Impact Across States  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• State tax restructuring helps reduce income and franchise tax liabilities through legal, operational, and financial structure adjustments. 

• Businesses with separate filing states, foreign ops, or upcoming transactions can benefit from tailored state tax restructuring strategies. 

• Intercompany transactions and transfer pricing studies are essential tools for compliant, audit-ready state tax restructuring plans. 

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As organizations expand organically or conduct strategic transactions or acquisitions, their state tax liabilities are likely to increase. State tax restructuring can be key to reducing state tax liabilities. Many companies are unaware of the restructuring options available and the opportunities they offer. State income tax restructuring can help organizations improve state tax efficiency and reach business objectives. By understanding the types of restructuring opportunities available, tax leaders can help their organizations become more state tax efficient.  

When Should a Company Consider State Tax Restructuring? 

State tax restructuring involves evaluating an organization’s state tax profile and identifying ways to change its operational, financial, or legal entity structure to help improve tax efficiency.   

While every organization’s situation is unique, the most common business profiles considered for restructuring include: 

• Organizations paying significant taxes in separate filing states;  

• Organizations that pay large amounts of state income taxes and have considerable foreign operations; 

• Organizations planning strategic transactions; and  

• Organizations with substantial franchise tax liabilities. 

Organizations Paying Significant Taxes in Separate Filing States 

There are opportunities to restructure to help reduce state tax liabilities — particularly for organizations that have significant state tax liabilities in separate filing states. Separate filing states impose tax on each corporation with nexus in the state, while mandatory combined filing states assess tax on the combined income of affiliates operating as a unitary business group. The orange states in the map below are separate filing states.  

Separate Filing States 

Map indicates U.S. separate filing states based on information available as of May 27, 2025: Alabama, Arkansas, Delaware, Florida, Georgia, Iowa, Indiana, Louisiana, Maryland, Mississippi, Missouri, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, and Virginia. 

Organizations can leverage different filing methodologies across states and set up legal structures for tax planning purposes. For example, affiliated groups that have entities filing in separate and combined filing states can restructure their operations to report more income in combined filing states and less income in separate filing states, provided the restructuring is properly implemented and any intercompany dealings are well documented, at arm’s length, and consistent with applicable state tax laws. Reporting more income in combined filing states may reduce state tax liabilities in separate filing states while having minimal to no impact in combined filing states. 

Organizations That Pay a Significant Amount in State Income Taxes and Have Significant Foreign Operations 

Organizations that have foreign operations or plan to expand internationally can sometimes leverage their international presence to save state taxes. For instance, numerous unitary combined states exclude foreign corporate affiliates or “80/20 corporations” (that is, a corporation with more than 80% of its payroll, property, and/or sales outside the U.S.) from the combined group. Companies with foreign operations may be able to restructure their operations to minimize their state income tax liabilities but with minimal to no impact to their foreign tax liabilities. As with any planning, the restructuring must be properly implemented and documented to achieve state tax savings.     

Organizations Planning a Strategic Transaction 

Corporate and pass-through entities might also consider restructuring their businesses to help prepare for a major transaction or liquidity event. For instance, pass-through entities such as partnerships or S corporations can properly plan and restructure in anticipation of major transactions to help minimize the transactions’ state tax burdens on their owners. 

Organizations Paying Significant Franchise Taxes 

There are planning and restructuring opportunities for companies that pay substantial state franchise taxes based on their assets or net worth. Companies might also be able to use planning strategies to reduce their franchise tax bases or conduct business in alternative structures that can reduce their franchise tax liabilities. At times, the restructuring strategies that help minimize state franchise taxes may also serve to minimize state income taxes.    

Using Intercompany Transactions for State Tax Efficiency 

Intercompany transactions can help organizations reduce their state tax liabilities. However, to withstand audit scrutiny, transfer pricing studies must be performed to ensure intercompany transactions are conducted at arm’s length and consistently with applicable federal and state tax laws. Companies should consider restructuring strategies that incorporate intercompany transactions to mitigate state tax costs. However, it is critical that all intercompany transactions comply with federal and state transfer pricing rules, have legitimate business purposes, and are properly documented. 

What Is the Process for State Tax Restructuring? 

Restructuring an organization for tax efficiency purposes can be time and resource intensive, involving numerous internal and external advisors, including financial, legal, and tax professionals. Restructurings typically are executed in four phases: strategic assessment, design, implementation, and maintenance.  

Phase 1: Strategic Assessment 

Review the organization’s business data and information, including operations, financial data, income projections, and tax position. 

Develop various structural options, outlining associated business implications and the potential state tax impact and savings of each structure.  

Present a summary of findings to management and key stakeholders to evaluate the various restructuring options. 

Phase 2: Design 

• Conduct a comprehensive evaluation of the restructuring options to determine the most efficient structure. 

• Assess the business and tax considerations of the various structures.  

• Determine the restructuring option that will be pursued and develop an implementation workplan and execution timeline. 

Phase 3: Implementation 

• Manage and facilitate execution of the workplan, including legal, accounting, operations, human resources, payroll, tax, and other affected areas. 

• Conduct weekly meetings to assess progress, identify issues, and determine resolutions. 

• Work with accounting teams on system modifications to establish separate books and records for the new entities. 

• Perform transfer pricing studies and comparables research to identify arm’s-length price and prepare the transfer pricing report. 

• Prepare all business and tax registrations for the new entities. 

Phase 4: Maintenance 

• Perform a review to determine if procedures, policies, accounting, and other affected areas are operating as intended. 

As state tax authorities increase their scrutiny of complex tax structures, it’s critical for entities to maintain strong supporting documentation that defends any new structure’s business purpose. Organizations should maintain documentation that demonstrates transactions were conducted according to federal and state transfer pricing rules and at arm’s length. Separate balance sheets, income statements, board meeting minutes, and proper accounting of intercompany transactions are necessary for compliance.  

Pursuing a Restructuring Strategy 

While restructuring may seem daunting, it can significantly help strengthen your state tax posture and enhance state tax efficiency. 

For organizations considering restructuring to mitigate state income tax liabilities, adhering to compliance and legal standards is critical. Working with experienced advisors who have knowledge of state income tax, sales and use tax, transfer pricing, federal tax, and employment tax, can help companies navigate the complexities of state tax restructuring and develop strategies that align with their long-term objectives.  

Written by Mariano Sori-Marin and Shirley Wei. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

How MGO Can Help Optimize Your State Tax Structure 

MGO’s state and local tax professionals work with organizations to identify and implement restructuring strategies that reduce state tax burdens and support long-term growth. We provide end-to-end support — from strategic assessment through implementation and documentation — tailored to your unique operational footprint. Whether you’re preparing for a major transaction, navigating multistate complexities, or seeking tax efficiencies, our team delivers practical solutions grounded in compliance and informed by decades of experience. Contact us to learn more.  

The post How Restructuring Can Help Support State Tax Efficiency  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Know which regulations apply to your business, such as ITAR or ER, and identify high-risk jurisdictions.  

• Follow key elements of an export control and sanctions compliance program, including senior management commitment, risk assessment, internal controls, and training. 

• Vigilantly assess potential red flags and risk factors on a per-transaction basis, using resources like BIS “Red Flags” and Know Your Customer guidance.  

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Considering the rapidly changing export controls and sanctions landscape, companies need to ensure their compliance programs respond to the latest-breaking risks and demands from regulators.  While the scope and volatility of trade sanctions may seem daunting, companies can protect themselves from costly violations by proactively bolstering compliance programs.  

Export controls and sanctions risk can exist in any cross-border transaction involving foreign jurisdictions, people, or products.  A responsive sanctions compliance program needs to 1) Respond to specific risks based on your organization’s operations; and 2) Demonstrate to regulators that you have prioritized compliance and leveraged the tools available to you.   

The encouraging part is that you can strengthen an export controls and sanctions compliance program without incurring significant costs by implementing a few practical measures. 

If you are concerned about your sanctions risk, but aren’t sure where to start, ask yourself the following questions: 

1. Do you understand which regulations apply to your business? 

It is imperative to know which regulations and laws may apply to your business. Understand which government regulators (OFAC, BIS, DDTC, EU, OFSI) exercise jurisdiction over your business, products, information and services. For example, are exported items subject to the International Traffic in Arms Regulations (ITAR) (defense articles and defense services) or Export Administration Regulations (EAR) (dual-use and general commercial goods) and has the company classified those items accordingly under the Munitions List and Commerce Control List, respectively? The penalties for non-compliance differ depending on whether exported items are subject to the ITAR or EAR.  

Be familiar with your geography and high-risk jurisdictions/transshipment countries of concern. For example, BIS and FinCen published a joint alert listing transshipment countries of concern including, but not limited to, Armenia, Brazil, China, Georgia, India, Israel, Kazakhstan, Kyrgyzstan, Mexico, Nicaragua, Serbia, Singapore, South Africa, Taiwan, Tajikistan, Turkey, United Arab Emirates, and Uzbekistan. 

2. Do your compliance policies provide a digestible and practical roadmap for your compliance program? 

We recommend that businesses involved in cross-border transactions should follow the key elements of an effective export control and sanctions compliance program. OFAC, DDTC, and BIS all provide separate guidance for an effective compliance program but contain overlapping themes:  

• Senior management commitment – policy statement 

• Risk assessment 

• Internal controls 

• Handling violations and taking corrective action 

• Monitoring, testing, auditing 

• Training 

Additionally, compliance policies and manuals should act as a roadmap for your company’s sanctions compliance program.  These policies should: 

• Reflect requirements of regulatory guidance 

• Encompass all business cycles with sanctions compliance risk (e.g., sales, procurement, supply chain, etc.) 

• Clearly identify and explain compliance risks 

• Detail mitigating controls 

• Designate compliance roles and systems 

• Provide real-life examples to help employee comprehension 

• Identify records to retain and related storage systems 

• Be disseminated/readily available to employees 

• Be periodically updated based on regulatory, system, and business changes 

Regulators expect a risk-based compliance program that is tailored to the business and is routinely updated. Organizations should continually assess their export controls and sanctions compliance risks in a rapidly changing environment. For instance, consider changes in operations, locations, products, services, business relationships, etc. Companies should also monitor regulatory guidance and enforcement actions as a good sanctions compliance program is one that can respond nimbly to regulatory changes and guidance.  

3. Is your company exercising due diligence best practices on a transaction- and system-wide basis? 

Organizations should be vigilant about different warning signs and risk factors on a per-transaction basis. BIS “Red Flags” and Know Your Customer guidance found in Supplement No. 3 to EAR Part 732 is a great resource for ascertaining potential red flags. For example, any transactions with Russia and Belarus are high risk due to the significant OFAC and EAR restrictions involved.  

Companies should utilize enhanced due diligence for higher-risk jurisdictions, customer types, and significant relationships. Business partner due diligence should include several components, including: 

• Documents and electronic records provided by the business team members  

• Independent research of publicly available information and media 

• In-person visits, inspections and verification 

• KYC’s Customer – End Users 

• End Use verification 

• Screening and re-screening parties 

4. Are you enhancing the use of your company’s data and IT systems? 

Every organization has data, and regulators expect that organizations will utilize available data in their compliance programs.  Companies should ask themselves if they understand the extent of their organization’s data, and whether they are able to leverage that data to control sanctions compliance risks. For example, most companies closely track customers and sales, but do they also retain information on their distributors and agents, freight forwarders, shipping routes, and the origin of all the components in any branded products built by third-party manufacturers?   

Retaining all available data and entering it into IT systems in a standard format allows companies to automate transaction analysis for sanctions risk, screen third parties against restricted entity lists, and respond to demands of regulators. Failure to take such measures can lead to enhanced penalties in the event of a violation, whether intentional or not.   

Key essential measures to implement for data and IT systems include: 

• Integrate IT systems and automate restricted party screening when possible 

• Standardize data format across IT systems to allow for full-business cycle analysis 

• Require supporting documentation, including for customer onboarding, travel, shipment, and vendor payment request. This allows for automated matching, e.g., bill of lading to invoices to verify delivery location 

• Generate dashboards to alert for potential risks 

• Perform keyword searches on systems and emails for “code words” pointing to potentially prohibited transactions 

• Periodically test and enhance IT controls 

5. Are your employees equipped with the necessary training, resources, and skills to effectively execute your compliance program? 

Your people are the front line against potential export controls and sanctions violations.  Personnel in key roles perform due diligence on customers, authorize contracts and transactions, and can perform audits and inspections of your compliance activities and those of third parties.  It is critical that these personnel remain well-versed in evolving compliance risks and your company’s risk response.   

Compliance trainings should include: 

• Sanctions and export controls (including EAR and ITAR, as applicable) compliance awareness training for all employees/contractors – front line of defense 

• External trainings for key relationships 

• Job-specific training that is risk-based and tailored to employee roles 

• Multiple formats – online, in-person with Q&A, etc. 

• Knowledge checks and exams 

• Periodic evaluation of training content – is it keeping up with changes in regulations and the sanctions environment? Has it been updated for changes in business? 

• Continuous reinforcement – periodic training reinforced with sanctions compliance communications 

Additionally, organizations should perform quality assurance, audits, and inspections of both their own company and key compliance functions as well as those of their business team members.  Audits should be conducted by personnel that are qualified and independent.  Some key elements of such activities include: 

• Perform focused internal or external audits of your sanctions and export controls compliance program 

• Examine your key internal controls, ensure they are operating as designed 

• Test system/IT controls – e.g., automated screening, transaction holds 

• Conduct random records spot checks to ensure appropriate record retention 

• Audit/Inspect/Visit your business partners (e.g., freight forwarders, distributors, contract manufacturers, warehousing providers) 

• Establish a process to implement corrective actions – tracked milestones, deadlines and accountability 

• Create a feedback loop – communicate results, observations, recommendations and enhancements to key stakeholders 

• Establish a reporting hotline – mechanisms/channels for employees and business partners to report suspected violations for follow up 

In today’s dynamic global trade environment, companies should prioritize the development and enhancement of their export controls and sanctions compliance programs to effectively manage risks and adhere to regulatory demands.  

While the complexity and unpredictability of trade sanctions can be overwhelming, organizations can safeguard themselves against costly violations by taking proactive measures. This involves tailoring compliance programs to address specific risks associated with their operations and demonstrating a strong commitment to compliance to regulators. Importantly, enhancing these programs doesn’t have to be financially burdensome; practical steps can be taken to strengthen compliance efforts.  

For companies uncertain about their sanctions risk, a good starting point is to critically assess their current compliance posture by asking targeted questions about their operations and risk management strategies. 

Written by Richard Weinert and Nate Giarnese (BDO USA) and Luis Arandia and Nicholas Galbraith (Barnes & Thornburg). Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

How MGO Can Help 

MGO can help you understand and navigate complex export control and sanctions regulations. Our team of International Tax professionals offers tailored risk assessments, help develop comprehensive compliance programs and provide ongoing support to make sure you remain compliant with the latest regulatory changes. We can also conduct due diligence and training to keep your employees informed and prepared for potential risks. Contact us to help you confidently manage sanctions risk and protect your business from costly violations.  

The post From Uncertainty to Clarity: Key Questions to Help You Get Started with Addressing Sanctions Risk  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Sweeping tax changes enacted through the reconciliation bill include permanent TCJA cuts and major reforms to business, individual, and international tax rules. 

• Taxpayers should begin modeling changes now, especially for bonus depreciation, research expensing, Section 163(j), and Opportunity Zones, to identify planning windows. 

• A wide range of industries including manufacturing, real estate, energy, and financial services will be affected, with varying opportunities and risks across sectors 

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The president signed into law a sweeping reconciliation tax bill in a July 4 signing ceremony, capping a furious sprint to finish the legislation before the self-imposed holiday deadline. The Senate approved the bill in a 51-50 vote on July 1 after making a number of last-minute changes following intense bicameral negotiations. The House voted 218-214 on July 3 to send the bill to the president’s desk. 

Notable late changes to the version of the tax title released by the Senate Finance Committee on June 16 include: 

• Cutting Section 899 from the bill after reaching an agreement on Pillar Two with G-7 countries; 

• Significantly amending the provisions on global intangible low-taxed income (GILTI), foreign-derived intangible income (FDII), and the base erosion and anti-abuse tax (BEAT); 

• Modifying the energy credits provisions; 

• Removing the shutdown of state pass-through entity workarounds to the cap on deducting state and local tax (SALT); 

• Removing an unfavorable expansion of the loss limit under Section 461(l); 

• Reducing the new tax on remittances; 

• Changing the opportunity zone provisions; 

• Expanding to all residential construction an exception to the long-term contract rules; and  

• Removing a new excise tax on litigation financing. 

Also, President Donald Trump reportedly promised House conservatives that he would strictly enforce the beginning of construction rules for wind and solar projects and potentially make the permitting process more difficult. 

With the legislation now final, taxpayers should focus on assessing its impact and identifying planning opportunities and challenges. The bill offers both tax cuts and increases that would affect nearly all businesses and investors. The Joint Committee on Taxation (JCT) scored the bill as a net tax cut of $4.5 trillion over 10 years using traditional scoring. Under the current policy baseline the Senate used for purposes of the reconciliation rules, that cost drops to just $715 billion. The Senate scored the provisions against a baseline that assumes temporary provisions have already been extended, essentially wiping out the cost of extending the tax cuts in the Tax Cuts and Jobs Act (TCJA). 

The bill not only makes the TCJA tax cuts permanent but amends them in important ways. The legislation also offers a mix of favorable and unfavorable new provisions. Key aspects of the bill include: 

• Making 100% bonus depreciation permanent while temporarily adding production facilities;  

• Permanently restoring domestic research expensing with optional transition rules; 

• Permanently restoring amortization and depreciation to the calculation of adjusted taxable income (ATI) under Section 163(j) while shutting down interest capitalization planning; 

• Increasing the FDII effective rate while changing the deduction allocations and other rules;  

• Increasing the GILTI effective rate while changing the foreign tax credit (FTC) haircut and expense allocation rules;  

• Increasing the effective rate on BEAT; 

• Phasing out many Inflation Reduction Act energy credits early and imposing new sourcing restrictions;  

• Creating new deductions for overtime, tips, seniors, and auto loan interest; 

• Imposing a 1% excise tax on remittances;  

• Increasing filing thresholds for Forms 1099-K, 1099-NEC, and 1099-MISC; 

• Extending opportunity zones with modifications; 

• Increasing transfer tax exemption thresholds; and 

• Increasing the endowment tax to a top rate of 8%. 

Takeaway

Now that the legislation is final, taxpayers should assess its impact carefully and consider planning opportunities. Several key provisions offer different options for implementation. The effective dates will be important, and there may be time-sensitive planning considerations.  

The following offers a more detailed discussion of the provisions. For a comparison of the tax provisions to current law and the campaign platform see BDO’s table. Join BDO July 10 for a webcast discussing the bill and its impact. 

Business Provisions 

Bonus Depreciation 

The bill permanently restores 100% bonus depreciation for property acquired and placed in service after January 19, 2025.  

The legislation also creates a new elective 100% depreciation allowance under Section 168(n) for any portion of nonresidential real property that is considered “qualified production property.” The election is available if construction on the property begins after January 19, 2025, and before January 1, 2029, and the property is placed in service by the end of 2030. 

A qualified production activity includes the manufacturing of tangible personal property, agricultural production, chemical production, or refining. Qualified production property does not include any portion of building property that is used for offices, administrative services, lodging, parking, sales activities, research activities, software engineering activities, or other functions unrelated to qualified production activities.  

There is an exception from the original use requirement if acquired property was not used in a qualified production activity between January 1, 2021, and May 12, 2025. Special recapture rules apply if the property is disposed of within 10 years after it is placed in service.  

The bill also increases the Section 179 deduction to $2.5 million with a phaseout threshold of $4 million for property placed in service after 2024, with both thresholds indexed to inflation in future years. 

Takeaway 

Allowing producers, refiners, and manufacturers to fully expense buildings rather than depreciate them over 39 or 15 years offers a significant benefit. The definition of “production” will be important, and generally requires “a substantial transformation of the property comprising the product.” Taxpayers with buildings that house both qualified production activities and other administrative, office, or research functions will also likely need to perform an analysis to allocate costs between functions. 

Section 174 Research Expensing 

The bill permanently restores the expensing of domestic research costs for tax years beginning after December 31, 2024. The permanent expensing rules are created under new Section 174A, while Section 174 is retained and amended to provide for the continued 15-year amortization of foreign research costs. Software development is statutorily included in the definition of research for purposes of Section 174A. Taxpayers retain the option of electing to capitalize domestic research costs and amortize such amounts over either 10 years or the useful life of the research (with a 60-month minimum).  

The bill will generally require taxpayers to implement the new treatment with an automatic accounting method change on a cut-off basis, but it offers two alternative transition rules. Taxpayers can elect to claim any unamortized amounts incurred in calendar years 2022, 2023, and 2024 in either the first tax year beginning after 2024 or ratably over the first two tax years beginning after 2024. Separate transition rules are available for eligible small business taxpayers meeting the gross receipts test under Section 448 ($31 million in 2025) for the first tax year beginning after 2024, allowing those taxpayers to file amended returns to claim expensing for tax years before 2025. Retroactivity is not available to small business taxpayers that are tax shelters, such as pass-throughs that allocate more than 35% of their losses to limited partners or limited entrepreneurs. 

The bill also amends Section 280C to again require taxpayers to reduce their deduction for research costs under Section 174A by the amount of any research credit (or reduce their credit by an equivalent amount), effective for tax years beginning after 2024. Under changes made by the TCJA, taxpayers were generally required to reduce their Section 174 capital account only to the extent the research credit exceeded their current-year amortization deduction. For most taxpayers, that meant that the amortization deductions and research credits were both allowed in full.  

Takeaway 

The restoration of domestic research expensing is somewhat retroactive, and taxpayers will have several options for recognizing unused research amortization and for recovering future research costs. Businesses should consider modeling their options to identify beneficial strategies because the timing of deductions can affect other calculations, including those for Section 163(j), net operating losses, FDII, and GILTI. 

Section 163(j) Interest Deduction Limit  

The bill permanently restores the exclusion of amortization, depreciation, and depletion from the calculation of ATI for purposes of Section 163(j), which generally limits interest deductions to 30% of ATI. The change is effective for tax years beginning after 2024. 

The bill also makes two unfavorable changes effective for tax years beginning after 2025:  

• Excluding income from Subpart F and GILTI inclusions and excluding Section 78 gross-up from ATI; and 

• Including interest capitalized to other assets in the limit under Section 163(j), except interest capitalized to straddles under Section 263(g) or to specified production property under Section 263A(f).  

The business interest allowed as a deduction up to the Section 163(j) limit will come first from any capitalized interest. Any disallowed capitalized interest exceeding the cap will be incorporated into the Section 163(j) carryforward and will not be treated as capitalized in future years.   

Takeaway

The ability to again exclude amortization and depreciation from ATI will provide welcome relief for many taxpayers, but others will be negatively affected by the changes. The JCT score indicates that the revenue raised from shutting down capitalization planning and excluding new categories of income will save more than one-third of the $60 billion cost of reinstating the exclusion of depreciation and amortization. Taxpayers should model the impact and consider tax attribute and accounting method planning. Although the bill essentially shuts down interest capitalization planning for years beginning in 2026 or later, those strategies remain viable for the 2024 and 2025 tax years. The legislation does not claw back any interest capitalized to other assets in tax years beginning before 2026, even if the capitalized interest has not been fully recovered with the asset.  

Section 199A 

The bill makes permanent the deduction for pass-through income under Section 199A and favorably adjusts the phaseout of the deduction for taxpayers who do not meet the wage expense and capital investment requirements or who participate in a “specified trade or business.” The legislation also creates a minimum deduction of $400 for taxpayers with at least $1,000 of qualifying income.  

Opportunity Zones 

The bill makes permanent the qualified opportunity zone (QOZ) program and updates the rules for investments made after 2026. As in the current program, taxpayers can defer capital gain by investing in a qualified opportunity fund. For investments made after 2026, taxpayers will be required to recognize the deferred gain five years after the date of the investment but will get a 10% increase in basis. Taxpayers can still receive a full basis step up to fair market value (FMV) for property held 10 years, but the bill adds a rule freezing the basis step up at the FMV 30 years after the date of the investment.  

Current QOZ designations will expire early at the end of 2026. New zones will be designated in rolling 10-year designation periods under new criteria that are expected to shrink the number of qualifying zones. A new category of rural opportunity zones is created. The 10% basis increase is tripled to 30% for investments in rural opportunity zones and the threshold for establishing the substantial improvement of qualifying property would be lowered to 50%. 

Both qualified opportunity funds (QOFs) and qualified opportunity zone businesses (QOZBs) will be required to comply with substantial new reporting requirements. 

Takeaway

The bill does not extend the mandatory recognition date of December 31, 2026, for investment made before 2027, as many taxpayers had hoped. But the program’s extension preserves one of the most powerful tax incentives ever offered by lawmakers. The timing of capital gains transactions may be particularly important. Delaying a capital gain transaction could allow taxpayers to make a deferral election in 2027 and defer recognizing the gain until well after the current 2026 recognition date. On the other hand, QOZ designations are likely to change in 2027. Taxpayers planning investments in geographic areas that are unlikely to be redesignated may need to make the investments before the end of 2026. Existing QOFs and QOZBs should consider their long-term capital needs because it is not clear whether any “grandfathering” relief will allow additional qualified investments into funds operating in QOZs that are not redesignated. The new reporting rules will apply to both new and existing QOZs and QOZBs for tax years beginning after the date of enactment, and those entities will need to collect and report substantial new information that has never before been required. 

Qualified Small Business Stock 

The bill enhances the exclusion of gain for qualified small business (QSB) stock under Section 1202 issued after the date of enactment in the following ways: 

• In addition to the existing 100% exclusion for qualified stock held for five years, taxpayers can qualify for a 50% exclusion after three years and a 75% exclusion after four years;  

• The current limit on the exclusion (the greater of $10 million or 10 times basis) is increased to $15 million, indexed to inflation beginning in 2027; and 

• The limit on gross assets at the time stock is issued is increased from $50 million to $75 million, indexed to inflation beginning in 2027. 

Takeaway

QSB stock is a powerful tax planning tool that can essentially erase gain of up to 10 times the initial basis. The changes make the structure more accessible and increase the size of potential investments. The bill does not change the expansive qualification requirements under Section 1202, and taxpayers should understand the rules clearly and document compliance throughout the holding period. 

Section 162(m) 

The bill amends the aggregation rules for applying the $1 million limit on deducting the compensation of a public company’s covered employees under Section 162(m). The current rules identify covered employees separately for each public entity but calculate compensation subject to the limitation on a controlled group basis. The number of covered employees is set to expand by five for tax years beginning in 2027 or later, and there has been some question whether such employees can come from the entire controlled group or only the public entity. 

The bill creates a new aggregation rule for tax years beginning after 2025 for identifying who is a covered employee and the amount of compensation subject to the limit. The aggregation rules are based on a controlled group as defined under the qualified plan rules in Section 414. The proposal also provides rules for allocating the $1 million deduction among members of a controlled group.   

Takeaway

The provision will have unfavorable consequences for many companies, including requiring the full amount of compensation from a related partnership in the calculation (rather than a pro-rata amount based on ownership percentage). It is estimated to raise almost $16 billion.  

Form 1099 Reporting 

The bill amends Section 6050W to reinstate the 200 transaction and $20,000 threshold for reporting third-party payment network transactions on Form 1099-K. The American Rescue Plan Act of 2021 repealed that threshold and required reporting when aggregate payments exceeded $600, regardless of the number of transactions. The IRS offered transition relief delaying the implementation of the change for two years and then provided a $5,000 threshold for payments made in 2024 and a $2,500 threshold for payments made in 2025. The bill restores the old threshold retroactively so that reporting is required only if aggregate transactions exceeded 200 and aggregate payments exceeded $20,000.  

The bill also increases the threshold for reporting payments under Sections 6041 and 6041A on the respective Forms 1099-MISC and 1099-NEC from $600 to $2,000 in 2026, indexing that figure to inflation in future years. 

Remittance Tax 

The bill imposes a new 1% excise tax on remittances of cash, money orders, cashier’s checks, or other similar physical instruments, with an exception for transfers from most financial institution accounts or debit cards. 

Takeaway

The tax in the final version affects a much narrower set of payments than the original 5% tax proposed in the House and the 3.5% tax in earlier House and Senate drafts.  

Exception for Percentage of Completion Method 

The bill expands exceptions to the percentage of completion method under the long-term contract rules under Section 460. The exception for home builders is expanded to include all residential construction. Further, the exception from the uniform capitalization rules for home builders meeting the gross receipts threshold under Section 448(c) ($31 million in 2025) is expanded to include all residential construction, and the allowable construction period is extended from two years to three. 

Employee Retention Credit 

The legislation makes several changes to the employee retention credit (ERC), including: 

• Barring ERC refunds after the date of enactment for claims filed after January 31, 2024; 

• Extending the statute of limitations on ERC claims to six years; and 

• Increasing preparer and promoter penalties on ERC claims.  

Takeaway

The provision presumably will affect only refund claims that have not been paid by the IRS. The legislative language provides that no credit or refund “shall be allowed or made after the date of enactment” unless the claim was filed on or before January 31, 2024. The IRS had been slow to process claims – potentially in anticipation of this provision, which had been included in a failed 2024 tax extenders bill. The provision is now estimated to raise only $1.6 billion, much less than the $77 billion estimated under the 2024 version. The difference may be the result of refunds that have already been paid, although it remains unclear how fast the IRS is processing claims filed after January 31, 2024. 

International Provisions 

Foreign-Derived Intangible Income 

The bill makes significant reforms to FDII, including raising the effective rate while making the calculation of income more generous. 

The bill permanently lowers the Section 250 deduction from 37.5% to 33.34%, still well above the 21.875% deduction rate that would take effect without legislation. The change will increase the FDII effective rate from 13.125% to 14% (compared to 16.4% absent legislation).  

The bill also repeals the reduction in FDII for the deemed return on qualified business asset investment (QBAI) and provides that interest and research and experimental (R&E) costs are not allocated eligible income. The final version modifies a change from an earlier draft that would have narrowed the allocation of deductions only to those “directly related” to such income. The final bill provides that the calculation includes “properly allocable” deductions. 

The changes are effective for tax years beginning after 2025, aside from a new exclusion from FDII-eligible income that would take effect after June 16, 2025. The bill would exclude income or gain from the Section 367(d) disposition of intangible property or property subject to depreciation, amortization, or depletion. The final bill omits a provision from an earlier draft that would have also excluded specified passive income subject to the high-tax kickout. 

Takeaway

The changes could expand the value of the deduction for many taxpayers despite the effective rate increase, particularly for industries with significant fixed assets and R&E costs. Taxpayers should assess the changes for potential planning and arbitrage opportunities, given the change in rates and rules. There may be accounting methods opportunities that could increase the benefit in current and future years. 

Global Intangible Low-Taxed Income 

The bill increases the GILTI effective rate while making both favorable and unfavorable changes to the underlying calculation effective for tax years beginning after 2025.   

The Section 250 deduction for GILTI decreases from 50% to 40%, still higher than the 37.5% deduction rate that would take effect without legislation. The effective rate before the FTC haircut will increase from 10.5% to 12.6% (compared to 13.125% absent legislation). The bill will also reduce the FTC haircut under GILTI from 20% to 10%, resulting in an equivalent top effective rate of 14% (up from the current 13.125% rate and the 16.4% rate that would take effect without legislation). It also provides that 10% of taxes (compared to 20% absent legislation) previously associated with Section 951A taxed earning and profits are not treated as deemed paid for purposes of Section 78. 

The deemed return for QBAI is repealed, increasing the amount of income subject to the tax. The provision also changes the allocation of expenses to GILTI for FTC purposes so that it includes only the Section 250 deduction, taxes, and deductions “directly allocable” to tested income. It also specifically excludes interest and R&E costs.  

Takeaway

The changes are significant and could affect GILTI calculations in both favorable and unfavorable ways. The legislation does not provide a definition of “directly allocable,” and guidance may be important in this area. Taxpayers should assess the impact and consider FTC and other planning strategies.  

Base Erosion and Anti-Abuse Tax 

The bill increases the BEAT rate from 10% to 10.5% for tax years beginning after 2025, lower than both the 14% rate in the previous Senate draft and the 12.5% rate that would take effect without legislation. The legislation also repeals an unfavorable change to the BEAT scheduled to take effect in 2026 that would effectively require taxpayers to increase their liability by the sum of all income tax credits. The final bill omits several provisions from an earlier draft that would have changed the base erosion percentage, created a high-tax exclusion, and shut down interest capitalization planning.  

Takeaway 

The final version removed several favorable changes from an earlier draft but potentially still allows for planning that capitalizes interest to other assets. 

Reciprocal Tax for ‘Unfair Foreign Taxes’ 

The final bill omits proposed Section 899, which would have imposed retaliatory taxes on residents of that impose “unfair foreign taxes.” The provision was removed from the legislation after the Trump administration announced an agreement with the G-7 countries to “exempt” the U.S. from Pillar Two taxes. The G-7 released a statement saying that the countries are committed to working toward an agreement that would create a side-by-side system to fully exclude U.S.-parented groups from the undertaxed profits rule and income inclusion rule while ensuring that risks related to base erosion and a level playing field are addressed. The group also agreed to work toward compliance simplification and consider treating nonrefundable tax credits similarly to refundable tax credits. 

Takeaway

The ability of G-7 countries to drive broader agreements — and the details emerging from any such agreements — will be critical for U.S. multinationals. The current announcements are largely just statements of intent on a common goal. No countries outside the G-7 were party to the commitments, and there may be resistance from some OECD and EU countries.  

Other International Provisions 

The bill includes several other international provisions effective for tax years beginning after December 31, 2025, including: 

• Making permanent the controlled foreign corporation (CFC) look-through under Section 954(c)(6); 

• Restoring the exception from downward attribution rules under Section 958(b)(4) that was repealed under the TCJA while adding a narrower rule under Section 951B that is more closely aligned with the TCJA’s intent; 

• Amending the FTC rules to treat inventory produced in the U.S. and sold through foreign branches as foreign-source income, capped at 50%, likely only for branch category purposes; and 

• Amending the pro-rata rules under GILTI and Subpart F. 

Takeaway

The changes are generally favorable. The permanent extension of the CFC look-through rule under Section 954(c)(6) preserves an important exception for Subpart F income that is scheduled to sunset at the end of 2025. The restoration of Section 958(b)(4) could simplify reporting obligations for some taxpayers. However, Section 951B gives Treasury the authority to provide guidance on reporting for foreign-controlled U.S. shareholders. The inventory sourcing rule could result in additional foreign-source income for FTC purposes when compared to the current rule, which sources based on production activities. Finally, the pro-rata share rules will require a U.S. shareholder of a CFC to include its pro-rata share of Subpart F or GILTI income if it owned stock in the CFC at any time during the foreign corporation’s tax year in which it was a CFC. That provision removes the requirement that the U.S. shareholder own the CFC’s stock on the last day the foreign corporation was a CFC. The proposal provides Treasury with the authority to issue regulations allowing taxpayers to make a closing of the tax year election if there is a disposition of a CFC.  

Energy Provisions 

Consumer and Vehicle Credits 

The bill repeals the following credits with varying effective dates: 

• Previously owned clean vehicle credit under Section 25E repealed for vehicles acquired after September 30, 2025; 

• Clean vehicle credit under Section 30D repealed for vehicles acquired after September 30, 2025; 

• Commercial clean vehicle credit under Section 45W repealed for vehicles acquired after September 30, 2025; 

• Alternative fuel refueling property credit under Section 30C repealed for property placed in service after June 30, 2026; 

• Energy-efficient home improvement credit under Section 25C repealed for property placed in service after December 31, 2025; 

• Residential clean energy credit under Section 25D repealed for expenditures made after December 31, 2025; and 

• New energy-efficient home credit under Section 45L repealed for property acquired after June 30, 2026. 

Depreciation 

The bill repeals the five-year depreciable life of qualified energy property. The Section 179D deduction is repealed for construction beginning after June 30, 2026.  

Sections 48E and 45Y 

The bill will generally begin to phase out the production tax credit under Section 45Y and the investment tax credit under Section 48E for projects beginning construction after 2033 except for solar and wind projects. Wind and solar projects beginning more than 12 months after the date of enactment must be placed in service by the end of 2027. 

The bill also creates restrictions related to prohibited foreign entities, most significantly adding limits on receiving material assistance from a prohibited entity for facilities that begin construction after December 31, 2025. Material assistance is based on a cost ratio for sourcing eligible components. The bill also tightens domestic sourcing requirements under Section 48E.   

Takeaway 

The final language was softened with a last-minute amendment that allows some continued runway for wind and solar projects. The change angered some House conservatives, who blocked a final vote in the House for hours before reportedly extracting a promise from the administration that it would vigorously enforce the beginning of construction rules. Treasury may have limited ability to change the guidance in this area because the statute itself provides that the beginning of construction for some credit purposes shall be determined under rules similar to existing IRS notices. 

Section 45X 

The advanced manufacturing credit under Section 45X is repealed for wind energy components sold after 2027 but will otherwise be extended to allow a 75% credit for components sold in 2031, 50% for 2032, 25% for 2033, and fully repealed for 2034 or later. The credit is expanded to cover metallurgical coal. Material assistance rules for prohibited foreign entities apply. 

Section 45Z 

The bill extends the Section 45Z clean fuel production credit through 2031 while reinstating a stackable small agri-biodiesel credit under Section 40A. A new restriction under Section 45Z disallows a credit unless the feedstock is produced or grown in the U.S., Mexico, or Canada. The calculation of greenhouse gas emissions is amended to exclude indirect land use changes and new prohibited foreign entity rules are imposed. 

Other Energy Provisions  

The bill makes several other changes, including: 

• Repealing the clean hydrogen production credit under Section 45V for construction beginning after 2027, two years later than earlier versions of the bill would have provided; 

• Increasing the rates for carbon capture under Section 45Q for carbon sequestered as a tertiary injectant or for productive use to provide parity with the rates for permanent geologic storage (also adding foreign entity of concern restrictions); 

• Expanding the publicly traded partnership rules to allow income from carbon capture facilities nuclear energy, hydropower, geothermal energy, and the transportation or storage of sustainable aviation fuel or hydrogen; and 

• Adding new restrictions for foreign entities of concern for the nuclear production credit under Section 45U. 

Tax-Exempt Entities 

The bill replaces the 1.4% endowment tax rate with graduated brackets based on the size of the endowment per student up to a top rate of 8%. The tax applies only to universities with at least 3,000 students, up from 500.   

The bill also expands the excise tax on executive compensation exceeding $1 million to include all current employees, as well as former employees employed in tax years beginning after 2016. 

Takeaway 

The final version of the bill removed provisions that would have increased the excise tax on private foundations and resurrected the “parking tax,” which included the value of transportation in fringe benefits in unrelated business taxable income.  

Individual Provisions 

Deduction for Tip Income 

The bill creates an annual deduction of up to $25,000 for qualified tips reported on Forms W-2, 1099-K, 1099-NEC, or 4317 for tax years 2025 through 2028. The deduction is available without regard to whether a taxpayer itemized deductions but begins to phase out once modified adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers. 

For tips to be deductible, they must be paid voluntarily in an occupation that “traditionally and customarily” received tips before 2025, as provided by the Secretary. The business in which the tips are earned cannot be a specified trade or business under Section 199A, and self-employed taxpayers, independent contractors, and business owners face additional limitations.  

Employers will be required to report qualifying tips to employees on Form W-2. The provision applies only to income taxes and generally does not affect the employer’s FICA tip credit except to extend it to specified beauty services businesses.   

The bill gives Treasury several explicit grants of authority to provide regulations on specific issues. The IRS is required to adjust withholding tables and provide guidance within 90 days to define which occupations “traditionally and customarily” received tips in the past. The IRS will also need to provide rules for determining when a tip is voluntary.   

Takeaway 

The provision will affect employers in important ways. Hospitality companies will face new reporting requirements that depend on how the business and worker occupations are characterized. Further, an employee’s ability to deduct tips could also depend on employer policies, such as mandatory tips, service charges, or other amounts that are not determined solely by customers.  

Deduction for Overtime Pay 

The bill creates a permanent deduction of up to $12,500 (single) and $25,000 (joint) of qualified overtime compensation for tax years 2025 through 2028. The deduction is available without regard to whether a taxpayer itemized deductions but begins to phase out once modified adjusted gross income exceeds $150,000 for single filers and $300,000 for joint filers. 

Qualified overtime compensation is defined as compensation paid to an individual required under Section 7 of the Fair Labor Standards Act (FLSA). Employers must perform new information reporting to separately report overtime pay. 

Takeaway 

Determining whether compensation is qualified overtime pay will not be made using tax rules but will instead depend on the employer’s characterization of the pay under the FLSA. 

Auto Loan Interest Deduction 

The bill will create a permanent deduction of up to $10,000 of interest on a qualified passenger vehicle loan for tax years 2025 through 2028. The deduction begins to phase out once modified adjusted gross income exceeds $100,000 for single filers and $200,000 for joint filers.  

The vehicle must be manufactured primarily for use on public streets, roads, and highways, and its final assembly must occur in the U.S. The deduction does not apply to lease financing and the loan cannot be to finance fleet sales, purchase a commercial vehicle, purchase a salvage title, purchase a vehicle for scrap or parts, or be a personal cash loan secured by a vehicle previously purchased by the taxpayer. 

Takeaway

Auto loan financing companies will face additional reporting requirements and be required to furnish a return with specific information on loans. 

Personal Exemption for Seniors 

The bill provides a new $6,000 personal exemption for individuals aged 65 and above for tax years 2025 through 2028. The deduction phases out for taxpayers with modified adjusted gross income exceeding $150,000 for joint filers and $75,000 for all other taxpayers.  

Takeaway

The personal exemption is meant to fulfill Trump’s pledge to remove tax on Social Security payments, which is not allowable under reconciliation rules. The legislation does not affect payroll taxes on Social Security payments. 

Individual TCJA Extensions 

The bill largely makes the individual TCJA provisions permanent, although with some important modifications. The individual rate cuts and bracket adjustments are made permanent while providing an extra year of inflation adjustment for the lower brackets. The bill also makes permanent: 

• The repeal of general personal exemptions;  

• The limits on the deductions for mortgage interest (while adding mortgage insurance premiums as qualified interest), personal casualty losses, and moving expenses; 

• The repeal of miscellaneous itemized deduction (with an exception for some educator expenses); and 

• The exclusion for bicycle commuting reimbursements. 

The bill restores an itemized deduction for up to 90% wagering losses, capped at the amount of wagering income.  

The bill makes permanent the increased alternative minimum tax exemption and phaseout thresholds but would claw back inflation adjustments to the phaseout thresholds by resetting them to 2018 levels. The actual phaseout of the exemptions based on the amount of income exceeding the thresholds is slowed by half.  

The bill permanently repeals the Pease limitation on itemized deductions that the TCJA suspended through 2025, but it would create a new limit. The new provision would essentially cap the value of itemized deductions so that the maximum benefit achievable for the deductions is equivalent to offsetting income taxed at a top rate of 35% rather than offsetting income taxed at the higher individual marginal rate of 37%.  

The bill creates a 0.5% haircut on individual itemized charitable deductions but also adds a permanent charitable deduction for non-itemizers of up to $2,000 for joint filers and $1,000 for other taxpayers. 

SALT Cap 

The bill makes the SALT cap permanent while raising the threshold for five years and then reverting it to $10,000 in 2030. The cap is set at $40,000 for 2025 but phases down to $10,000 once income exceeds $500,000. Both thresholds will increase by 1% for each year through 2029.  

Takeaway

Earlier drafts of the bill would have shut down taxpayers’ ability to use pass-through entity tax regimes to circumvent the SALT cap; the final version eliminated those provisions.  

Transfer Taxes 

The bill permanently sets the lifetime exemptions for the gift, estate, and generation-skipping transfer taxes at $15 million for 2026 and indexes them for inflation thereafter. The change represents a modest increase from the exemptions under the TCJA, which were initially set at $10 million but reached $13.99 million in 2025 with inflation adjustments. 

Active Business Losses 

The legislation makes the active loss limit under Section 461(l) permanent but reverses recent inflation adjustments in the $250,000 threshold.  

Takeaway

The final bill struck an unfavorable provision in earlier drafts that would have required disallowed losses to remain in the Section 461(l) calculation in future years. Under the final bill, disallowed losses still become net operating losses in subsequent years and can offset other source of income.  

Other Provisions 

The bill contains a number of other meaningful tax changes, including: 

• Creating a 1% floor for charitable deductions for corporations by providing that a deduction is allowed only to the extent it exceeds 1% of taxable income (up to the current 10% cap) for tax years beginning after 2025; 

• Changing the explicit regulatory mandate for disguised sale rules under Section 707(a)(2) to clarify that the rules are self-executing without regulations, effective after the date of enactment; 

• Raising the percentage of allowable assets a real estate investment trust (REIT) may have in a qualified REIT subsidiary from 20% to 25% effective for tax years beginning after 2025; 

• Making permanent the increases to the low-income housing tax credit;  

• Increasing the Section 48D credit for semiconductor manufacturing facilities from 25% to 35% for property placed in service after 2025; 

• Making permanent the new markets tax credit; 

• Treating spaceports like airports for the private activity bond rules, effective for obligations issued after the date of enactment; 

• Increasing the limit on the “cover over” to Puerto Rico and the U.S. Virgin Islands for excise taxes on distilled spirits effective for imports after 2025; 

• Allowing the liability from gain on the sale of qualified farmland property to be paid in 10-year installments for sales after the date of enactment; and 

• Creating tax-preferred accounts for children, with a pilot program offering a $1,000 contributory credit for qualifying children for tax years beginning after 2025. 

Takeaway

The inclusion of the new markets tax credit and the CFC look-through rule, which are both scheduled to expire at the end of 2025, indicates that Republicans do not have much hope for another tax bill this year. House Ways and Means Committee Chair Jason Smith, R-Mo., originally left those provisions off the House bill, saying he hoped to address them in a bipartisan extenders bill. Republicans have also discussed moving a second reconciliation bill, although that may have been a negotiating ploy to appease members whose priorities are not addressed in this bill. 

Next Steps 

Taxpayers should assess the potential impact of major provisions when considering the tax efficiency of transactions and investments. There may be planning opportunities that should be considered now, such as accelerating or abandoning energy credit projects or investments and modeling the impact of changes to the limit on the interest deduction under Section 163(j), bonus depreciation, and research expensing under Section 174. Changes to opportunity zone rules could affect the timing for triggering capital gains and making investments. International changes may present arbitrage opportunities to capitalize on favorable changes or mitigate the impact of unfavorable changes. 

Written by Dustin Stamper. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

Navigating What’s Next: Industry-Specific Tax Strategies 

This reconciliation bill marks one of the most consequential shifts in tax policy in recent years —impacting businesses across nearly every sector. At MGO, we’re helping clients in manufacturing, real estate, financial services, energy, and emerging technology interpret the changes and respond with purpose.

From bonus depreciation and research expensing under Section 174 to the evolving rules around Section 163(j), Opportunity Zones, and global tax alignment, our professionals bring deep technical insight and practical industry knowledge to every engagement. Whether you’re modeling tax scenarios, rethinking compliance, or reevaluating deal timing, MGO’s team is ready to help. Contact us to learn more.  

The post Republicans Complete Sweeping Reconciliation Bill  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• OBBBA tax changes signed July 2025 affect Q2 ASC 740 tax provision and valuation allowance disclosures for calendar-year companies. 

• GILTI and FDII rule changes may increase tax rates and impact deferred tax assets and international tax strategies in 2025. 

• New bonus depreciation rules and state nonconformity create challenges in 2025 tax modeling and ASC 740 reporting. 

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President Donald Trump signed the reconciliation tax bill, commonly known as the “One Big Beautiful Bill Act” (OBBBA) into law July 4, 2025, which is considered the enactment date under U.S. Generally Accepted Accounting Principles (GAAP). The legislative changes will affect income tax accounting in accordance with Accounting Standards Codification (ASC) 740, Income Taxes. Notable corporate provisions include the restoration of 100% bonus depreciation; the creation of Section 174A, which reinstates expensing for domestic research and experimental (R&E) expenditures; modifications to Section 163(j) interest limitations; updates to the rules for global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII); amendments to the rules for energy credits; and the expansion of Section 162(m) aggregation requirements. Refer to BDO’s tax legislative alert for additional analysis. 

Those provisions could have important implications for the calculation of current and deferred taxes, including the assessment of valuation allowances. However, because the bill was signed after the June 30 period-end and its provisions have varying effective dates, only some changes – such as those affecting valuation allowance assessments – might affect the current year’s financial statements. For calendar-year filers, there are specific disclosure considerations for their Q2 10-Q filings, as discussed below. 

Changes in Tax Laws 

Under ASC 740, the impact of tax law changes on taxes payable or receivable for the current year is reflected in the estimated annual effective tax rate (AETR) in the period that includes the enactment date. Adjustments to prior years’ income taxes resulting from new legislation are recognized as discrete items in income tax expense from continuing operations in the period of enactment. 

For deferred taxes, the effects of tax law changes on temporary differences and related deferred taxes existing as of the enactment date are recognized as discrete items in the period of enactment as a component of income tax expense from continuing operations. Companies must make a reasonable effort to estimate temporary differences and related deferred tax amounts, including related valuation allowances, as of the enactment date. For temporary differences arising after the enactment date within the current year, the impact of the tax law change is incorporated into the AETR beginning in the first period that includes the enactment date.  

Insights: Accounting for Tax Law Changes in an Interim Period 

We are aware of an alternative policy that allows companies to use beginning-of-year temporary differences and related deferred tax balances when evaluating the impact of tax law changes during an interim period. Companies should discuss the approach with their auditors and tax advisors. 

For companies that have elected to recognize deferred taxes on GILTI, any changes in the tax law that affect GILTI deferred tax accounting must be reflected in the interim period that includes the enactment date, as discussed below. Also, companies may need to assess the impact of the expanded Section 162(m) aggregation rules on the recognition of deferred tax assets (DTAs) related to share-based compensation for covered employees. 

Insights: Accounting for Retroactive Changes in Tax Laws 

If a tax law change is retroactive, the accounting treatment depends on whether the impact relates to prior periods or the current year. For prior-period deferred taxes and taxes payable or receivable, the effect is recognized discretely in the period of enactment. However, if the retroactive change affects current-year taxes payable or receivable – when the effective date is before the enactment date but still within the current year – the impact is recognized through an adjustment to the AETR. The updated AETR is then applied to year-to-date ordinary income, resulting in a catch-up adjustment for taxes payable or receivable in earlier interim periods.  

Companies should consider that rule when assessing the financial reporting implications of some provisions enacted in July 2025 that are retroactive to the beginning of 2025. That includes provisions such as R&E expensing, Section 163(j) limitation on interest deductions, and 100% bonus depreciation (for property acquired and placed in service after January 19, 2025). 

Valuation Allowance Considerations 

Adjustments to valuation allowances for DTAs existing as of the enactment date are recorded as discrete items and allocated to income tax expense from continuing operations. Conversely, the expected adjustment to the valuation allowance at year-end for deductible temporary differences originating after the enactment date and related to current-year ordinary income must be incorporated into the estimated AETR.  

The corporate provisions – such as the permanent restoration of 100% bonus depreciation, R&E expensing, changes to the GILTI and FDII rules, and the more favorable calculation of the interest limit under Section 163(j) – could have important effects on the determination of valuation allowances for many companies. Specifically, the updates could affect projections of future taxable income, including adjusted taxable income under Section 163(j), potentially triggering a change in judgment about the realizability of DTAs. 

If tax law changes are enacted after the period ends but before financial statements are issued, changes to the valuation allowance are not recognized until the period that includes the enactment date. However, disclosure may be required, as discussed below. 

Insights: Reassess the Realizability of Deferred Tax Assets 

Before, companies might have recorded a full valuation allowance on their Section 163(j) DTA as a result of the interest deduction limitation being based on 30% of adjusted taxable income, which included amortization, depreciation, and depletion (that is, the earnings before income and taxes limitation). The reinstatement of the earnings before income, taxes, depreciation, and amortization limitation under Section 163(j) for tax years beginning after December 31, 2024, might require a reassessment of the realizability of the current-year disallowed interest deduction and Section 163(j) carryforward DTAs from prior years that were previously subject to a full valuation allowance. 

International Provisions 

The OBBBA includes several major changes to international tax provisions. Further, it renames the FDII and GILTI provisions to “foreign-derived deduction-eligible income” (FDDEI) and net controlled foreign corporation tested income (NCTI), respectively. In this Alert, we use the terms “FDII” and “GILTI.”  

The OBBBA introduces major changes to the FDII regime by increasing the effective tax rate from 13.125% to 14% through a permanent reduction of the Section 250 deduction from 37.5% to 33.34% – a rate still higher than what would have applied without the legislation. It also makes the FDII calculation more favorable by eliminating the reduction for qualified business asset investment (QBAI) and specifying that interest and R&E costs are not allocated to eligible income. Most FDII changes in the OBBBA are effective for tax years beginning after 2025. 

The act raises the effective tax rate on GILTI by reducing the Section 250 deduction from 50% to 40%, resulting in a pre-foreign tax credit (FTC) effective rate increase from 10.5% to 12.6%. That is still lower than the rate that would apply without the act. The FTC haircut under GILTI is reduced from 20% to 10%. The OBBBA also repeals the QBAI deemed return, increasing the amount of income subject to GILTI, and narrows expense allocations for FTC purposes. Those changes are effective for tax years beginning after 2025. 

The OBBBA raises the base erosion and anti-abuse tax (BEAT) rate from 10% to 10.5% for tax years beginning after 2025, which is lower than the 12.5% rate that would have applied absent the legislation. It also repeals a scheduled 2026 change that would have increased BEAT liability by the sum of all income tax credits. 

For tax accounting purposes, FDII and BEAT are treated as period costs, and most companies also account for GILTI as a period cost. Because most of the OBBBA international provisions do not take effect until tax years beginning after December 31, 2025, companies will likely see an immediate accounting impact at enactment only if the law change affects their valuation allowance assessments – for example, if the changes affect future income projections used in the valuation allowance analysis.  

However, companies that recognize deferred taxes for GILTI-related basis differences must remeasure those deferred tax balances at enactment if they are expected to reverse after the new law becomes effective. Further, if a company factors BEAT into its assessment of deferred tax asset realizability, it must evaluate how changes to the BEAT calculation affect its valuation allowance and recognize any impacts in the period of enactment. 

Energy Credit Provisions 

The OBBBA significantly curtails and modifies a broad range of Inflation Reduction Act (IRA) energy tax incentives, imposes new domestic content and foreign entity restrictions, and phases out or repeals many credits in the coming years. The changes effective in 2025 could affect financial statements if companies had anticipated the impact of IRA credits in their 2025 AETR calculations for interim periods.  

Accounting Considerations for Uncertainty in Income Taxes 

Companies must assess the act’s impact, particularly in areas where the interpretation of new rules is uncertain. If a tax position expected to be taken on a tax return is not more likely than not to be sustained upon examination based on its technical merits, it must be evaluated under the recognition and measurement requirements of ASC 740 to determine the appropriate amount of tax benefit to recognize. 

State Income Tax Considerations 

Companies must assess the state and local tax effects of the OBBBA; the impact will depend on whether and how states conform to the federal tax code. State tax implications may be significant for bonus depreciation, R&E expensing, FDII, GILTI, and interest deductibility. Companies must review state conformity rules to determine the appropriate state tax effect and related tax accounting and may need to adjust state current and deferred tax balances in addition to federal balances. 

Financial Statement Disclosures 

Companies need to consider disclosing the expected effects of new tax laws in the notes to the financial statements, management’s discussion and analysis, and risk factors. 

If a law is enacted after the interim balance sheet date but before financial statements are issued, the tax law change would be considered a Type II nonrecognized subsequent event under ASC 855, Subsequent Events. In that case, companies must disclose the nature of the event and either estimate its effect (if material) or state that an estimate cannot be made. If a law is enacted during an interim period, major variations in the relationship between income tax expense and pretax income must be explained.  

For annual financial statement reporting, ASC 740-10-50-9(g) requires companies to disclose the tax effects of adjustments to deferred tax liabilities or assets resulting from enacted changes in tax laws or rates in their annual financial statements. Public business entities in the U.S. need to separately disclose the effect of tax law changes in the annual effective tax rate reconciliation.  

Next Steps 

Companies must assess the impact of the tax legislation on their income tax provision calculations, including current and deferred tax balances, the AETR, valuation allowances, and related financial statement disclosures. The analysis will likely require extensive modeling and planning because the provisions are highly interconnected. While this Alert highlights selected areas of income tax accounting that might be affected by the OBBBA, it is important to consider how the changes apply to specific facts and circumstances.  

Written by Daniel Newton and Bella Verdiyan. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

How MGO Helps You Navigate the New Tax Landscape 

The OBBBA brings a wave of corporate tax changes that present both risk and opportunity, especially around deferred tax assets, valuation allowances, and interim reporting under ASC 740. MGO’s Tax team works with tax and finance leaders to adapt provision models to reflect the latest federal and international updates. We support companies in life sciences, manufacturing, and technology by turning legislative changes into practical, forward-looking strategies. From addressing Q2 financial statement impacts to modeling future effects of GILTI, interest limits, and bonus depreciation, we serve as a resource for navigating complex tax reporting with accuracy and speed. Contact us to learn more.  

The post One Big Beautiful Bill Act: Implications for Accounting for Income Taxes  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Implementing basic accounting practices and understanding tax implications can help individuals working independently in creative fields gain clarity, meet obligations, and maximize income.

• Separating business and personal finances, tracking income and expenses, and budgeting for estimated taxes can help creators be proactive in their financial planning.

• Creators earning income across state lines or internationally need to be aware of varying taxation requirements in different jurisdictions.

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Today’s creators need to view themselves as both businesses and creatives. Whether you are a YouTuber, Instagrammer, painter, digital artist, photographer, website designer, or any type of artist or influencer, understanding and managing your financial obligations is a crucial aspect of sustaining a thriving career.

Here are 10 tips to help you meet your tax reporting responsibilities and get the most from your hard-earned income:

1. Separate Your Finances

To make your accounting more efficient and streamline the tax-filing process, it is a smart idea to separate your business and personal finances. Designate a dedicated business account to track income and expenses related to your artistic endeavors. This separation not only simplifies tax reporting but also enhances financial clarity, making it easier to assess the overall health of your creative enterprise.

Tip: Establish a separate account for business transactions, or multiple business accounts to allocate money for categories such as expenses, taxes, and savings.

2. Record All Transactions

Sometimes it can be challenging to determine what constitutes income. That’s why it’s important to track everything. Gifts received by sponsors are often taxable, especially if they are products in exchange for services (e.g., promotion of product). “Donations” from various fundraising activities like Kickstarter are also considered revenue. On the other hand, crypto and non-fungible tokens (NFTs) are considered property. Selling them usually generates a capital gain or loss.

Tip: Log all payments and gifts received, even if you are unsure, so your tax preparer can report appropriately.

3. Track Your Expenses

Creators and artists can benefit from various tax deductions tailored to their industry. Deductible expenses may include art supplies, equipment, software subscriptions, professional development, and even a portion of your home used as a dedicated workspace. While expenses should not be excessive, any “ordinary and necessary” expenses of your craft can be deducted.

Tip: Save receipts and track expenses in real-time using a spreadsheet, app, or software for easy recording and reporting.

4. Consider Forming an Entity

Creators who run their own business are often independent contractors. Consider setting up an entity for the business — which can help protect your personal assets from your business assets and offer tax savings. S corporations and LLCs are common for smaller businesses. For larger businesses where investors are coming in, C corporation may make sense.

Tip: Do some research or talk to a tax professional to find out if setting up an entity makes business and financial sense for you.

5. Explore Credits You May Be Eligible For

Artists also may be eligible for various tax credits that can help offset their tax liability. Research and development (R&D) credits can be applicable to certain creative processes, rewarding innovation in your artistic pursuits. For instance, software development is considered to be R&D for income tax purposes.

Tip: Consult a tax professional about ways to maximize credits and minimize your tax liability. 

6. Don’t Overlook State and Local Taxes (SALT)  

Beyond federal taxes, SALT significantly impact overall tax liability. When selling art or merch online (whether physical or digital), be mindful of sales tax requirements, which are determined by local laws. Whether revenue is from “tangible” versus “intangible” products (physical objects versus services, ideas, software, etc.) can dictate where taxation occurs — affecting if your income is subject to sales tax or not.

Tip: Stay informed about varying tax rates, and be cautious of sales and use tax implications tied to transmitting creative art across state lines.

7. Plan for Estimated Taxes

As an independent contractor with variable income streams, you should plan for estimated taxes to avoid financial surprises. These quarterly payments encompass income taxes on your profits plus the self-employment tax (covering Social Security and Medicare). For those earning up to $160,200 in net income, the self-employment tax rate currently stands at 15.3%. The silver lining is that you can deduct half of this self-employment tax when filing your income taxes.

Tip: Set aside a portion of your income for estimated tax payments, ensuring proactive financial planning throughout the year.

8. Report Global Income and Claim Foreign Tax Credits

United States (U.S.) citizens or residents earning abroad must report all worldwide income to the Internal Revenue Service (IRS). If you’re earning income in or from foreign countries, it’s crucial to understand foreign tax credits, filing requirements, and deductibility in various jurisdictions. Every tax jurisdiction may have a different method to tax your creation; and different tax implications may arise based on where brands and intellectual property are created and protected.

Tip: Work with a tax professional to evaluate the potential benefits of foreign tax credits for non-U.S. income.

9. Learn Your Options for Transferring Wealth

Digital assets such as domain names, electronically stored photos, and videos to email and social media accounts all have value. When transferring these as gifts or bequests, there may be tax implications that can be circumvented if the transfer is appropriately structured or organized.

Tip: Consider trusts and estate planning for more tax-efficient wealth transfer.

10. Adapt a Business Owner Mindset

As a creator, embracing a business owner’s perspective is essential for long-term success. Understanding basic financial statements like balance sheets and profit and loss (P&L) statements allows you to gauge profitability, identify your most valuable revenue sources, and streamline your efforts. Elevating your financial literacy empowers you to make more informed decisions — which can lead to greater freedom and flexibility in your career.

Quick Tip: Learn to read a balance sheet and create a basic P&L statement for a clearer financial picture.

Integrate Financial Management into Your Creative Journey  

Effective financial planning is like a great work of art — every brushstroke matters. By taking these steps today you can better position yourself to continue pursuing your creative passion tomorrow.

Need a hand with taxes and accounting for your creative venture? Our Entertainment, Sports, and Media practice works with a diverse range of artists and creators — from musicians and photographers to YouTubers and influencers — and our International Tax and State and Local Tax teams can provide guidance to help you address areas like sales tax or foreign tax credits. Reach out to MGO today.

This article was originally created in collaboration with HUG, a global community for artists and art lovers.

The post 10 Tax and Accounting Tips Every Creator Needs to Know appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Tariffs are driving up costs and forcing companies to rethink supply chains, supplier relationships, and sourcing strategies for resilience. 

• Boards must evaluate pricing models, competitive positioning, and financial strategies to stay agile amid shifting global trade dynamics. 

• Global operations require ongoing compliance reviews and risk assessments as countries respond with retaliatory trade measures. 

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Tariffs are back — front and center — and disrupting global markets and supply chains. In February and March, the Trump Administration triggered the latest trade war by imposing tariffs on various imports under a 1977 law — the International Emergency Economic Powers Act (IEEPA) — that had never been used to impose tariffs. These tariffs do not discriminate and now impact every trading partner of the U.S. without exception.  

Rising costs are causing organizations to scramble and question their business strategies to manage the significant and immediate cash costs involved with these new tariffs, which are all “above the line” and have to be paid by the U.S. importer of record to U.S. Customs and Border Protection at the time goods are imported. Because other countries have already announced retaliatory tariffs, similar cash costs are facing importers in foreign jurisdictions when they purchase merchandise of U.S. origin. 

Board Navigation Considerations 

Navigating this tumultuous geopolitical environment is a challenge that many boards of directors have not had to face in recent years. As directors begin to adapt to this new normal and rethink their approach to mitigate impact to their organizations, here are some issues they should consider: 

Supply Chain and Operational Resilience 

How will tariffs impact our supply chain and how can we mitigate disruption? Can we identify and prioritize where increased costs from materials and/or finished goods may arise?  

• Do we have strong relationships with our suppliers?  

• Can we partner with our suppliers to jointly offset the tariff impacts and/or improve resilience? 

• Can we renegotiate any existing supplier contracts?  

• Can we diversify our supply chain by introducing other suppliers and exploring alternative sourcing options? 

• If we diversify, how might this impact any sustainability practices in place? 

• How can we adapt and/or evolve so that this doesn’t negatively affect our bottom line? 

Pricing Strategies and Competitive Positioning 

How will tariffs impact our pricing strategy and market competitiveness? 

• Are there opportunities to capitalize on changing trade policies? 

• Are our competitors adjusting their pricing?  

• Do we need to adjust our pricing to account for increased costs?  

• If we increase our prices, will this significantly affect our competitiveness in the marketplace?  

• Are we continually seeking to expand and solidify our relationships with our customer base?  

• Do we understand and agree with assumptions by management to model the financial and operational impacts? 

• Are we investing in R&D initiatives to absorb additional costs incurred or leverage potential cost savings? 

• Have we considered financial hedging strategies to manage currency fluctuations and risk? 

Global Operations and Compliance Assessment 

Have we carried out an assessment of all countries in which we operate? 

• Have these countries introduced retaliatory tariffs or do they plan to do so? 

• Are we too reliant on one country for sourcing and could we shift and/or rely on other countries? 

• How will our customer base react if we shift operations to another country? 

• How stable is the political environment in the countries in which we operate? 

• Are we monitoring changes in trade policies and monitoring our processes to remain compliant? 

Board Composition and Expertise 

Does our board have the knowledge and skills required to oversee global trade and economic policy impacts? 

• Do we need to bring in external subject matter expertise to educate and advise the board? 

• Is the full board or a committee/subcommittee responsible for overseeing and advising on tariff strategy? 

• How can we upskill our directors in global trade and economic policy? 

Other Considerations 

Additional considerations for the board:  

• Are we anticipating trade impacts on strategy in both the near and longer term? 

• How is management prioritizing investments to adapt to tariffs and trade policy shifts? How are they defining ROI? 

• Is management considering efficiencies to be gained in automating processes related to trade and tariff considerations? 

• Do we have an intentional stakeholder communication strategy regarding the impact of tariffs on our business? 

• Is management proactive in gathering and considering feedback from suppliers and customers on pricing changes and/or supply decisions? 

Written by Rachel Moran, Damon V. Pike and Amy Rojik. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com  

How MGO Can Help 

At MGO, we understand that the return of sweeping tariffs — and the complexity they bring — can threaten every aspect of your organization’s operations, from pricing and supply chains to global compliance and board governance. Our team brings deep experience across international trade, tax strategy, and operational resilience to help you not only manage your near-term cash impacts of tariffs but also reimagine your strategies for long-term stability and growth. 

Whether you’re navigating retaliatory tariffs, reassessing competitive positioning, or future-proofing your supply chain, we can provide the insight and support you need to move forward confidently. Contact us today to learn more.

The post Global Trade Tensions: What Should the Board Know as Tariffs Evolve and Expand?  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Final Section 987 rules add complex new foreign currency reporting for U.S. owners of foreign disregarded entities, effective in 2025.  

• New “disregarded payment loss” rules may trigger U.S. income inclusions tied to foreign-deductible interest and royalty payments in 2026.  

• Global anti-hybrid tax regimes and Pillar Two rules reduce the effectiveness of FDE strategies and may increase global minimum tax exposure.  

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Since the Tax Cuts and Jobs Act was enacted in 2017, the use of foreign disregarded entities (FDEs), often achieved via the check-the-box election, has increased. FDEs are often used to reduce U.S. federal income tax, commonly with respect to global intangible low-taxed income (GILTI) inclusions, but also in other circumstances, including the base erosion and anti-abuse tax and intellectual property repatriation. In many cases, the use of FDEs has been an effective strategy and relatively easy to implement with minimal tax cost. However, two sets of recently promulgated U.S. tax regulations have altered the scales by creating potential new challenges for U.S. owners of FDEs beginning in 2025.  

Background

From a U.S. tax perspective, the use of FDEs can effectively achieve several tax planning objectives with little downside. For example, FDEs can simplify the application of the passive foreign investment company (PFIC) rules, eliminate various Subpart F inclusions, and reduce GILTI inclusions by aggregating qualified business assets or absorbing the activities of a loss-making entity. Additionally, from a compliance standpoint, FDEs generally require simpler and less comprehensive federal tax filings (Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs)) compared to the much lengthier and onerous Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, that is required for controlled foreign corporations.   

2024 Brings New US Complexity 

On December 11, 2024, the IRS released final and proposed regulations under Internal Revenue Code Section 987 with respect to foreign currency gains and losses. Accounting for foreign currency fluctuations is not a new concept, and there have been multiple rounds of proposed but never finalized regulations on this complex topic dating as far back as 1991. As a result of the prolonged uncertainty, taxpayers have generally been able to use “any reasonable method” consistently applied.  

As a result of the final Section 987 regulations, accounting for foreign currency fluctuations will become more complex for FDEs. Unfortunately, there is virtually no time to prepare for this difficult exercise because the final regulations are generally effective for tax years beginning after December 31, 2024, that is, 2025 for calendar year taxpayers. For publicly traded companies, this complexity will need to be addressed in the first quarter to account for provision implications. 

The new regulations address the calculation of currency gains or losses to be reported by the tax owner of “qualified business units” (which generally include operational FDEs) when the tax owner and the FDE have different functional currencies. The final regulations provide detailed guidance requiring current and historical data points that may be quite difficult for many taxpayers to access. For example, Treas. Reg. §1.987-4 provides guidance for calculating the foreign currency gains and losses related to ongoing operations and Treas. Reg. §1.987-10 on the complex transition from previously used approaches to the new approach, and whether a transition gain should be taxed all at once or spread over 10 years. Treas. Reg. §1.987-11 and §1.987-12 discuss the approach to be taken when there is a transition loss.  

The final regulations offer several elections that may significantly simplify the calculation of currency gains or losses. Additionally, the proposed regulations that were simultaneously released provide an alternative election that may further simplify reporting. Some taxpayers could benefit from early adoption of the proposed regulations and should assess the implications of doing so, especially since early adoption requires application of the proposed regulations in their entirety, not a piecemeal selection of some portions of the proposed regulations.  

The second set of final regulations creating complexity for taxpayers with FDEs in their structure is the disregarded payment loss (DPL) rules. This is a subset of longstanding regulations regarding dual consolidated losses (DCLs), which are applicable to U.S. tax owners of (direct or indirect) FDEs and aimed at preventing “double dipping” whereby a single economic loss is used twice, once to offset foreign taxable income and again to offset U.S. taxable income.  

Historically, the calculation of a DCL ignored disregarded transactions. This is still the case; however, the new regulations, specifically Treas. Reg. §1.1503(d)-1, now require a U.S. tax owner of FDEs to recognize income equal to a “disregarded payment loss,” which is the net loss attributable to disregarded payments of interest or royalties that are deductible under foreign tax law.  

Pursuant to the final DPL regulations published on January 14, 2025, taxpayers must now maintain a complex and extremely detailed registry of transactions between disregarded entities and the ultimate U.S. tax owner and calculate U.S. income inclusions to create a symmetry that is directionally more in line with the historical concerns of foreign countries. Consequently, to the extent the disregarded payments involve interest or royalties, the DPL regulations may result in a new tax inclusion to the U.S. taxpayer. These rules are effective for tax years of the U.S. tax owners beginning on or after January 1, 2026. Like the foreign currency regulations, U.S. tax accounting for transactions involving FDEs’ foreign currency fluctuations will be more complex than transactions involving subsidiaries classified as corporations for U.S. tax purposes.   

Foreign Country Considerations 

Many foreign countries have expressed concerns about the potential lack of symmetry, that can occur when FDEs are used, in particular the opportunity to create a local tax deduction without a corresponding income inclusion in the U.S. Several countries have responded by unilaterally adopting a variety of anti-abuse regimes, often referred to as anti-hybrid rules. While this country-by-country approach continues (for example, Germany finalized its anti-hybrid rules in December 2024), a coordinated effort led by the OECD has produced a more global approach to anti-hybrid rules. In particular, the Pillar Two regime takes direct aim at hybrid structures and generally disregards U.S. tax classification elections altogether. Thus, the new 15% minimum tax introduced as part of the global anti-base erosion (GloBE) rules applies to every entity without regard to the entity’s classification as a corporation or disregarded entity for U.S. tax purposes. 

Written by Brandon Boyle, Chip Morgan and Helen Vu. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

Global Structure Planning in a New Regulatory Era: How MGO Can Help

With new U.S. regulations on foreign currency and disregarded payments — as well as increasing global scrutiny of hybrid structures — multinational businesses need to rethink how they use foreign disregarded entities (FDEs) in tax planning. Navigating the evolving complexities around FDEs requires more than just technical know-how; it takes a proactive, strategic approach. That’s where MGO comes in. Our International Tax team stays ahead of regulatory developments like the new Section 987 and disregarded payment loss (DPL) rules, so you don’t have to.  From cross-border structuring to provision analysis, we bring clarity and compliance to a shifting global tax landscape. Contact us to learn more at mgocpa.com. 

The post Revisiting the Cost/Benefit Analysis of Foreign Disregarded Entities: Recent US Regulations  appeared first on MGO CPA | Tax, Audit, and Consulting Services.