Article written by:
Tawny Flareau, CPA
Senior, Tax & Business Advisory Services
Last month at the Mid-America Restaurant Expo, we had the opportunity to attend a handful of seminars featuring an array of leaders in the restaurant industry. One seminar in particular, “Leading the Way”, included a panel comprised of Abigail Pringle, International & Chief Development Officer of Wendy’s, Jane Grote Abell, Chairwoman of Donatos and Jane Dough Foods, Britney Ruby Miller, President of Jeff Ruby Culinary Entertainment, and Lisa Ingram, President and CEO of White Castle. There were many takeaways from this panel of leaders with one standing out that effectively sums up a universal financial principle for all industries; “Everything comes back to tax”.
This was stated by Abigail Pringle, when asked what advice she would give to someone at an entry-level position who wanted to stand out from the crowd and climb the corporate ranks, especially at a large company like Wendy’s. Abigail went on to encourage that person to try new things with different people in as many departments as possible, especially tax!
This advice is valuable because many of the short- and long-term decisions made across various departments in a company can all end up impacting tax. It’s important to consider the tax implications when making business decisions, especially in the restaurant space, which is known for being an innovative industry with lots of dynamic changes from year to year. The employees you hire, the improvements and equipment that are purchased, even the methodology of financing your restaurant, can affect what your taxes will be at year-end. From the inception of the new restaurant to its potential expansion locally, nationally, and globally; everything comes back to tax.
As such, below are a few key tax specifics to the restaurant industry everyone should understand and look out for:
- Work Opportunity Credit (WOTC) – This is a federal tax credit to incentivize businesses to hire employees from target groups which include qualified veterans, food stamp recipients, and ex-felons to name a few.
- FICA Tax Tip Credit – This also is a federal tax credit available to food and beverage establishments to claim a credit for social security and Medicare taxes paid by the employer on certain employees’ tips.
- Entity Selection – While the C corporation tax rate was reduced to 21% beginning in 2018, restaurants that are taxed as a pass-through entity (partnership or S corporation) may be eligible for the Qualified Business Income Deduction. Additionally, certain tax structures may prohibit certain types of owners (i.e. Private Equity, foreign owners, passive investors) which could impact current and future capital raises.
- Business Interest Limitation Deductibility – This portion of the internal revenue code disallows net business interest expense in excess of 30% of adjusted taxable income for certain businesses. This can impact highly leveraged businesses and play a role in determining the capital structure for acquisitions or expansions.
- Accelerated Depreciation – This is a tax incentive that allows a business to deduct 100% of the cost basis of most non-real property the year it was placed in service. “Section 179” expensing is still available for certain leasehold improvements.
To speak further about tax topics and the impact on the restaurant industry, contact us today.