The Side Dish

Finance to Table Education for Operating Your Restaurant

Top 10 tax planning tips for 2020

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A new decade is well underway, and below are ten top tax tips (say that five times fast) to make sure this year is your most tax-savvy to date!

Don’t miss: Resources for restaurants during COVID-19 crisis

  • Review your compensation – if your restaurant is owned in an S Corporation, you may want to review how you are paying yourself. You should pay yourself a wage to satisfy IRS requirements, but also use the new tax law and 20% deduction to your advantage by paying yourself via distributions as well.
  • Review your Retirement plan – a 401(k) or similar plan is a great way to defer income for you as an owner later into retirement. While the workforce in the restaurant industry can be quite transient, it could also be a helpful tool to retain some of that talent. Contributions made on behalf of employees are deductible and depending on plan setup can be discretionary.
  • Track your Tips – Restaurants and other employers who employ individuals receiving tips should track the tips they receive. In most states, the employer can take a tax credit up to certain thresholds for the difference between the statutory minimum wage and the minimum cash wage they must pay employees as defined by the DOL.
  • Expense your renovations – if your business generates taxable income, you can potentially expense your tenant improvements in the year they are placed in service. A wrinkle in the tax law will not allow you to take them if you have no taxable income, but your profitable business can potentially deduct the renovations all in the year they are placed in service. If you buy certain pieces of equipment or furniture, they may be expensed right away, no matter your income.
  • Take advantage of QBI – restaurants are eligible for a 20% deduction at the owner’s level, assuming they pay enough wages or have enough property in service.
  • Review Corporate Structure – does your corporate structure make sense in the new tax environment? You should review your structure to make sure your current and long-term goals are being met, both from a tax and from a legal standpoint.
  • Review Debt and Interest Expense – For certain large restaurants and their related entities, the deductibility of interest expense may be limited. You may want to review your capitalization to see if you can avoid this limitation.
  • Use Work Opportunity Tax Credits – certain individuals may generate a tax credit when they are hired and work for your business for a pre-determined amount of time. Typically, individuals such as veterans, needy families, etc. will help you get this credit.
  • Defer Gains with Opportunity Zones – if you have other large capital gains, you can re-invest them into businesses located in pre-determined locations known as Opportunity Zones. The rules here are numerous, but can lend themselves to huge tax breaks.
  • Stay Up to Date on Changes – be sure to subscribe to The Main Dish, The Side Dish, and all our other blogs and newsletters (HERE). Tax laws and accounting procedures are always changing, so don’t get left behind on the latest!

Feel free to contact your Henry+Horne tax adviser with any questions.

Brock R Yates, CPA, MT