Vining Sparks has distributed a piece which addresses the impact of the tax reform bill on among other things deferred tax assets, S-Corporations and the municipal market.

Their recommended action items include:

  • Consider taking losses in the bond portfolio prior to year-end and other strategies to accelerate losses and expenses this tax year.
  • Analyze how your tax-equivalent (TE) yields are impacted by the change in Tax Code.  On some shorter municipal bonds, it may make sense to extend into longer tax-exempt municipal bonds or to swap them for a taxable investment in some circumstances.
  • Re-evaluate deferred tax accounts and potential year-end adjustments related to potential tax-reform. For many banks, this could result in a significant adjustment to income and capital this year.
  • The implications of tax reform are complex and, in most cases, depend on many different factors that are specific to each institution. If you have questions we will try to help answer them. Should you wish to see an analysis of selling securities this tax year to accelerate losses please let us know.  If you would like to see an analysis send your portfolio please forward it via email with a note you would like to see year-end tax loss analysis.

The Vining Sparks information can be found here.

Special NOTE: 
Some of our Wisconsin banks still have investment subsidiaries. The special banking rule that treats securities gains and losses as ordinary does not apply to the investment subsidiary. As a result, any loss on securities at the investment subsidiary level would generate a capital loss that could only be offset against capital gains and then expires if unused after five carryforward years. Capital gains can be hard to generate for banks and therefore, large capital losses are best to be avoided. 

Banks should contact their tax advisor to discuss their specific situation.