Income taxes are an integral part of financial statements. The recently passed Tax Cuts and Jobs Act (TCJA) affects financial statements of 2017, though most of its provisions become effective in 2018.

Financial statements, prepared in accordance with generally accepted accounting principles (GAAP), of C corporations, usually differ in some ways from the reported income, expense, assets, and liabilities of the related tax returns. For example, equipment write-offs under Section 179 and 168(k) are more than the write-off based on estimated useful life, considering a salvage value, for GAAP financial statements.

The tax return may be on a deferral method such as the completed-contract method (CCM), which differs from the GAAP percentage-of-completion method. The tax percentage-of-completion method also differs from the GAAP percentage-of completion method in most cases.

Tax rules often require conformity with financial statements. The new tax law tightens this conformity even more, requiring accrual methods used for the financial statements to be the same for the tax return unless a special tax method is employed by the contractor. One such special method is the accrual excluding retainage method, often used for contractor tax returns but not allowed for GAAP, which would be an exception to the conformity requirement.