The tax bill approved Tuesday by Congress extends a variety of breaks to restaurant operators. Contrary to the hopes of many reformers, the measure does not simplify the process of computing what any filer, company or individual, is mandated to pay.
Here are some of the components with direct impact on the tax bills of restaurants and their owners, along with a layman’s view of the variables. Restaurateurs looking for a more exact gauge of the bill’s effects are encouraged to grill their accountants.
Expansion write-offs
Restaurateurs who open a new place or upgrade the equipment of an old one will be entitled to an immediate, full write-off for the investment, instead of amortizing the investment over several years. The provision is intended to foster job creation by providing businesses with an incentive to expand. The investment must be made before January 2023.
Pass-through companies
The majority of restaurant companies are pass-through concerns whose profits are passed along to owners for taxation as personal income, instead of being taxed at a corporate level. The bill hammered out in Congress exempts the first 20% of dispersed income from taxation, up to an amount of $315,000 for couples or $175,000 for individual filers.
The cap on the deduction replaces a controversial measure that based the upper limit on how much money a pass-through company paid in salaries. The stipulation was intended to discourage high-income professional service partnerships like law firms and medical practices from exploiting a measure intended to help small businesses such as restaurants. But the language would have had an unintended detrimental effect on midsized franchisors, whose sales and passed-along profits often rise much faster than the compensation of officers.
How income above $315,000 is taxed after being dispersed is a more complex matter that accountants are still sorting. But early reads by tax experts suggest most partners will still qualify for the 20% exemption.
Corporations also fare well
Earlier versions of a tax bill cut the rate on corporations to 20%. The compromise measure likely to be passed by Congress and passed to President Trump for his signature sets the rate at 21%, still a steep drop from the current rate of 35%.
Under current regulations, corporations can deduct enough on their taxes to bring their effective rate below 20%. The measure before Congress eliminates that alternative minimum tax, since the fundamental corporate rate is 20%. Theoretically, some companies could pay less.
Inheritance tax
Family restaurant businesses passed to the next generation as an inheritance will continue to be taxed at a rate of 40%, but only when the value of a concern left to an individual exceeds $11.2 million, or double the current level. The exempted value for married couples has also been doubled, to $22.4 million. The higher exemption thresholds expire in 2025.
Repatriation of overseas profits
Restaurant companies with overseas operations will be encouraged to pull the profits back to the United States under a one-time break. Up to $2.6 trillion in profits parked abroad can be brought home at an income tax rate of 15.5%, for one time only.
President Trump is expected to sign the 500-page tax bill into law by week's end.
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