The enactment of the Tax Cuts & Jobs Act (TCJA) contains many provisions that significantly change the tax landscape for both individuals and businesses. Here are four key changes that will have a significant impact on restaurant industry businesses (and their owners) and three strategies to consider:
1. Overall Reduction in Tax Rates
Restaurants that are structured as pass-through entities may benefit from the lowering of the individual tax rates. The highest individual tax rate was lowered from 39.6% to 37%. In addition, the total income amount that results in the application of the highest marginal tax rate was increased.
Effective January 1, 2018, restaurants operating as C-Corporations will now be taxed at a flat 21% federal income tax rate. This is a substantial decrease from the prior law which provided for a maximum rate of 35%. The tax rate applicable to qualified dividend distributions was unchanged.
2. Bonus Depreciation and Increased Section 179 Expense
The previous bonus depreciation requirement for property to be “original use” has been eliminated. As a result, bonus depreciation is available for both new and used property (applicable to property acquired after September 27, 2017). In addition, the bonus depreciation percentage has been increased to 100% for acquisitions occurring between September 28, 2017, and December 31, 2022 (i.e. 100% of the cost of qualified property can be expensed in the year of acquisition).