Key Restaurant Credits at Risk in Tax Plan


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Philip Taylor

Tax reform is grinding along in D.C., and some key tax credits are at risk in a new plan. 

The big talk from Capitol Hill is reforming the business tax brackets. The main corporate rate will be capped at 20%, down from 35%;  pass-through income would be taxed at a maximum rate of 25%, rather than 39.6%.

But that big number doesn’t mean a flat 15% benefit for businesses. Lawmakers need to balance that tax revenue somehow.

“How are we going to pay for the reduction in the tax rate? There always has to be some other side of the ledger, whether it be as you see on the individual side some deductions not being allowed, so we have to see whether the tax credits available to the restaurant industry will be around,” said BDO tax partner Adam Berebitsky. “If they reduce the tax rate but remove some of the credits available to the restaurant industry, at the end of the day they could result in higher tax.”

In the newly released plan (available at the bottom of this article), a handful of credits are on the chopping block or being revised.

First, the Work Opportunity Tax Credit is set to be repealed under the new proposal. The federal tax credit allows operators to reduce their federal tax liability by up to $9,600 per each newly hired employee from a target list that includes veterans, felons, food-stamp users, summer youth employees, disabled people and those on supplemental security income as well as a few others.

“This would possibly result in many restaurant companies owing more tax, especially QSRs that hire many employees that qualify for Work Opportunity Tax Credit,” said Berebitsky.

And then there’s the FICA tip credit, something that all restaurant operators have been anguishing over during this tax reform discussion. The new proposal isn’t going to help that anguish.

“It appears that the FICA tip credit will once again be calculated based on the current Federal Minimum Wage rate instead of the $5.15 base amount which was put in the code in 2007,” said Berebitsky. “This is going to result in a major reduction in the tax credit for full-service restaurants.”

One positive provision for restaurants in the tax reform legislation is the potential for a restaurant to write off up to $5 million of investment in qualified property under Section 179 (previously a maximum of $500K).   This would hopefully offset some of the lost tax credits.

When the final bill goes to vote, there could be more valuable credits at risk. Berebitsky said that means companies should take as much possible advantage of the credits while they exist.

He also said making sure to take advantage of bonus depreciation that is already set to dip from 50% to 40% in 2018. Then things like favorable write offs available for remodels (up to 75% for companies with audited statements), leasehold improvements (potential 100% Sec 179 deduction possible) and taking advantage of increased deductibility available under the previously revised repair & maintenance regulation.

“I always say companies need to be depreciation or fixed-asset experts in order to take advantage of the favorable depreciation available to restaurants,” said Berebitsky. “Knowing that the tax rate is not going to go up, for year end tax planning purposes you should make sure to maximize those deductions as much as you can."

The Small Business Lobby has already come out against the bill, as have other business groups. But if President Donald Trump gets his way, the deal will be signed into law by Christmas. But it might not be the windfall people expect when they’re only looking at the big corporate tax rate. 

See the full tax plan below, courtesy of CNBC: 

Tax Cuts and Jobs Act by CNBC.com on Scribd

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