On October 28, 2021, President Joe Biden released the $1.75 trillion Build Back Better Act. This is the most current proposal released by the President to combat climate change, extend health care coverage, and alleviate child poverty, among other priorities. Part of the framework in this plan includes several tax law changes.
This latest plan has significant favorable changes for the restaurant industry compared to the previous plan released just over six weeks ago. Although it is still unclear on timing and what the final form is, this plan has generally aimed tax increases at billion-dollar corporations, international taxpayers and high-income individuals (as defined as individual modified adjusted gross income in excess of $10 million and $200,000 for trusts). Tax increases targeted to these groups have largely spared the recovering restaurant industry.
The provisions stripped out of this proposal include increased individual income tax rates, a cap on the Section 199A deduction (20% deduction), capital gains increase, and reductions in lifetime gifting amounts that had concerned many restaurant owners.
There are a few provisions remaining that would be unfavorable to restauranteurs such as the permanent disallowance of the excess business loss limitation (already in place and was set to expire in 2026) and active S corporation owners being subject to the 3.8% net investment income tax.
Article written by:
Kaz Unalan, CPA
Director, Tax & Business Advisory Services