What every business should know about tax planningAlthough tax planning should be a year-round process, the owners and managers of many restaurants often don't check with their accountant or tax professional until tax time and don't consult their attorney unless there is a legal issue. Even worse, many remain in the dark about developments that might impact... on their tax bills, such as the following:
1. Health care: Despite the controversy and the confusion over the Affordable Care Act, part of the hotly debated law is already helping employers with 25 or fewer workers who pay their workers average salaries of $50,000 or less, and that pay half of their health insurance premiums by giving them a tax credit, a direct reduction of their tax bills.
2. Faster write-offs: The Section 179, first-year expensing write-off amounts change from year to year. Currently, the amount a small business can expense and immediately deduct for new equipment, machinery, furniture, fixtures and vehicle expenditures is $500,000 -– but only through 2013.
3. Bonus depreciation: Over the years this tax break has allowed restaurants to write-off up to 50 percent of the cost of vehicles, machinery, furniture, fixtures and equipment. Unlike property qualifying for the Section 179 write-off that can be either used or new, the bonus depreciation requirement that the taxpayer be the "first to use." Bonus depreciation is currently available for 50 percent of the cost of newly acquired assets but, once again only through 2013.
4. Faster write-offs for restaurant and retail property: The provision extending the 15-year straight-line recovery period for improvements made to qualified restaurant buildings, leased property, as well as so-called "retail improvements," has been extended for qualified expenditures made before Jan. 1, 2014.
5. Repairs and maintenance: A restaurant operation doing major renovations should schedule repairs and maintenance jobs separately. Despite new guidelines, capital improvements are not deductible as business expenses, like basic repairs are. Instead, improvement costs are added to the "basis" of the property. Lumping all of the work into one project could cheat the operation out of 100 percent deductible expenses.
6. Contributing food inventory: The charitable deduction for contributions of food inventory now expire Dec. 31, 2013. Thus, both incorporated and un-incorporated restaurants and food service businesses can claim an "enhanced" deduction for some donations of food inventory. For a business other than an incorporated restaurant, the total deduction for food inventory donations is limited to a maximum of 10 percent of the net income from the operation.
7. Losses: There are strict time limits for a restaurant to claim a Net Operating Loss carryback as well as electing to forego the carryback and just carry the loss forward. The typical statute of limitations for filing a NOL tax refund claim is three years from the time the return was filed or two years from the time the tax was paid, whichever period expires later. Lawmakers enacted a special provision that requires the claim for a refund to be filed within three years of the date on which the return was due to be filed (including extensions) -– for the taxable year of the net operating loss which results in such a carryback.
8. Work opportunity tax credit: The WOTC, a tax credit that rewards employers that hire individuals from targeted groups, was extended to Dec. 31, 2013 and applies to individuals who begin work for the employer after Dec. 31, 2011. Under the revised WOTC, restaurants and businesses hiring an individual from within a targeted group are eligible for a credit generally equal to 40 percent of first-year wages up to $6,000.
9. Independence contractors or not: The Affordable Care Act's so-called "Employer Mandate," has been postponed. That means restaurant operations with 50 or more "full-time equivalent workers" won't be required to offer health plans to employees, or pay stiff penalties for each uncovered worker beyond 30 employees until 2015. However, this might be the perfect time to reclassify workers classified as independent contractors whether in anticipation of the Employer Mandate or simply made erroneously and make that change as of Jan.1.
10. Records: Don't forget to hold onto those receipts for smaller expenses. While the IRS only needs receipts for business expenses over $75, every restaurateur and his or her business needs some form of documentation in order to claim those deductions. Of course, it also helps to know what deductions are available and what is needed to prove them.