The new tax bill that finally passed in December provides a number of extensions for various existing tax breaks for restaurant & bar owners. Here are some of the most important points you need to know about the impacts the tax bill will have on your bottom line when it comes time to file.
Write-Offs for Expansion
Proprietors of restaurants and franchise owners who either open a new establishment or upgrade existing equipment will be given a full and immediate write off option on their new investment. This part of the bill was specifically aimed at boosting employment and stimulate the economy by allowing restaurants to grow with far less of a burden to shoulder. Write-offs made on expansions under this provision must be filed before the start of the filing period in 2023.
Inheritance Tax Revisions
Family restaurants that are passed down to children will still be taxed at a rate of 40%. But this will only apply to businesses evaluated at over $11.2 million. That is double the current threshold, releasing many more small and medium-size businesses from the burden of having to pay for the right to pass wealth on to their children. Exemption values for married couples have been raised to $22.5 million. These elevated thresholds expire in 2025.
Most restaurants are what is known as pass-through concerns- meaning they are used to reduce the pain of double taxation. The bill makes the first 20% of dispersed income exempt up to $175,000 for individual filers and $315,000 for couples. The deduction cap replaces a measure that determined the upper limit on the amount of money pass-through companies paid in salaries. This was meant to curtail high-value professional service relationships from taking advantage of measures that were designed to help small businesses- like restaurants. But it was determined that the language of the stipulation would have created a loophole that would have had the opposite effect.
Leniency for Corporations
The corporate tax rate has been lowered from 35% to 21%. The initial version of this provision would have lowered them to 20%. Current regulations make it possible to pay an effective 20% rate by applying deductions. Certain provisions enable some types of companies to pay less under specific conditions.
Rewards for Repatriating Business Processes
In an effort to incentivize companies bringing business back to the U.S, the bill offers a one-time 15.5% tax rate on profitable enterprises that are brought home. Anticipation of this aspect of the bill alone has been a major driver behind much of the revitalization of the economy we’ve seen over the past 13 months.
The Bottom line
These provisions are just a sample of the relief that individuals and companies can expect to enjoy under the new law and is the first major tax revision bill since the 1980s. These cuts are beneficial for all businesses and are intended to spark new economic growth. As 2018 dawns, we will see whether restaurant and bar owners intend to reinvest these tax breaks into their businesses, creating growth- or simply pad their own pockets.
For more information on tax laws for restaurants, forms, and avoiding problems with restaurant taxes, the IRS provides a Restaurants Tax Center.
Linga POS and Benseron Hospitality does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Don is currently the Marketing Director for Benseron Hospitality, creators of Linga POS. Prior roles included Founder/CEO of a software email automation startup, Digital Marketing Director for a Fortune 500 Financial Services company, and roles as Sr. Product Manager and Marketing Technology Manager. Don has spoken on conference stages for over a decade, and led workshops on Design Thinking, SEO, Mobile Marketing, Crowdsourcing, and chaired an Innovation competition. www.linkedin.com/donrua