Year-End Tax Planning for Restaurant Success
Authored by: Doug Gross – Partner, CPA, CGMA
As winter creeps closer, starting to plan for the upcoming year might feel premature. However, in my experience I’ve found early tax planning to be invaluable. By getting ahead of the planning, restauranteurs are able to take full advantage of tax credits and savings that may only be available to their industry. Delaying planning often leads to missed opportunities.
Impending Tax Changes
As we inch closer to the end of 2025, it’s important to recognize that the existing Tax Cuts and Jobs Act (TCJA) provisions will sunset, signaling critical changes to your tax status. Proactive planning is crucial for mastering these changes. It concerns this year and lays the groundwork for future years.
Year-end planning should be viewed strategically rather than as a simple checklist task. Collaborating with a CPA with expertise in the restaurant industry can provide a clear financial understanding and help solidify the business’s foundation for the coming fiscal year.
Cash Flow Planning
A deep dive into your cash flow analysis at this stage can be a game-changer for your restaurant’s financial trajectory. By preparing now, you’ll establish a strong foundation to manage obligations and encourage growth smoothly, avoiding unexpected challenges.
Top Depreciation Strategies
1. Bonus Depreciation
Take advantage of the ability to write off substantial portions of your asset costs upfront. For example, the 80% bonus depreciation available in 2023 will decrease to 60% in 2024 and 40% in 2025, making short-term planning critical.
2. Section 179 Depreciation
This provision supports immediate full-cost write-offs, but it’s limited to $1.22 million for 2024, amidst a $3.05 million purchase threshold. Surpassing this ceiling reduces the deduction; hence, strategic purchasing is key.
3. Cost Segregation
Cost segregation can boost immediate cash flow by accelerating depreciation for specific asset categories. This strategy is particularly potent for those considering business expansions or renovations.
4. Pass-through Entity Tax
Entities such as partnerships or S-corporations can address state income tax through the business, potentially offering tax offsets for owners at the personal income tax level.
Year-End Tax Credits for Restaurants
1. Work Opportunity Tax Credit (WOTC)
Employers who hire individuals from certain targeted groups can take advantage of WOTC until December 31, 2025.
2. Tip Credits
Tip credits permit paying certain employees below minimum wage due to their tip income, with the FICA Tip Credit providing savings by covering the taxes on tip earnings.
3. Section 199A Deduction
Up to the end of 2025, you may deduct 20% of qualified business income, offering a substantial tax reduction for eligible entities.
Conclusion
As your dedicated advisor, I’m here to help you develop effective strategies for your operation. I’ll guide you in utilizing available tax credits to manage your tax obligations properly. By working closely with me, you’ll get personalized advice and concrete action plans to manage finances smoothly and avoid complexities.
At MBE, our Restaurant and Franchise team is at your service to steer you through year-end tax planning. Act promptly and let us help you ensure your financial foundation is secure, poised for success, and ready to welcome the new year with assurance and a clear direction.