Politicians and lobbyists are likely to be bleary-eyed today after plowing through the 479-page tax overhaul bill that was ramrodded through the Senate around 2 a.m. on Saturday, before most lawmakers had even read the tome. Next-day analysis revealed a number of provisions with particular relevance to the restaurant business. Here are a few of those components of the approved bill, along with how they differ from parallel parts of the measure that was passed by the House of Representatives last month.
The process of reconciling those differences is expected to begin as early as today. Some Beltway observers have conjectured that the House will merely replace its measure with the Senate bill for the sake of expediency. President Trump and other Republicans have said they hope to have a plan approved by Congress on the president's desk by Christmas.
Here’s what’s known about the Senate version as of right now.
Taxes on pass-through income
Most small- to medium-sized restaurant operations are organized as pass-through businesses—companies that pass along nontaxed profits to partners, shareholders or an individual owner, who then pay federal taxes on that income.
The House cut the rate on pass-through profits to 25%, from the current rate of 39.9%, with a 9% rate to be phased in for businesses netting less than $75,000. The particulars of the Senate measure are murkier for restaurants. Owners of pass-through concerns would be able to deduct 23% of their share of the profits. But the deduction only applies to individuals in service businesses who have a taxable income of less than $500,000 if they’re married or less than $250,000 if single.
Owners of any pass-through business will lose the 23% deduction if they also collect a salary from the company, unless the individuals fall below the $500,000 or $250,000 taxable-income thresholds. The Senate included safeguards to prevent an owner’s pay from being blended into the pass-along profits.
The definition of a service business was not clear at press time.
Estate tax stands, but with higher exemptions
The Senate bill doesn’t overturn the estate tax, slammed by opponents as a death tax. The 40% charge is levied on the businesses and other assets that wealthy Americans leave to their descendants. Restaurants owned by families are often subjected to the tax.
Although the Senate did not follow the House in overturning the tax, it roughly doubles how much of heirs’ inheritance is exempt from taxation. Anything less than $11 million for individuals and $22 million for couples will not be subject to the 40% levy. Proponents of an estate tax have estimated that only 1,800 Americans would be affected under the proposed Senate rules.
Restaurant companies that pull their overseas profits back to the United States would be taxed at a dramatically reduced rate of 14.5% under the Senate bill. The House measure sets that special low rate at 14%.
Under the Senate measure, restaurants would be able to write off what they spend on new equipment in each of the next five years, and a sliding portion of the investment for the five years afterward. The write-offs would end entirely after five years under the House bill.
Lower corporate rate
Like the House bill, the Senate version cuts the tax rate for big incorporated businesses to 20%, from the current level of 35%. However, the cut extended by the Senate version does not take effect until 2019.