2015 Tax Savings Strategies for Restaurants and Hotels
With 2015 complete, many restaurant and hotel owners should start thinking about preparing their upcoming tax returns. As a restaurant or hotel owner, there are multiple items to consider in order to reduce tax liabilities.
Depreciation on Fixed Asset or Leasehold Improvement Additions
Restaurant and hotel owners can claim substantial tax deductions on fixed assets that were placed into service in 2015. Under Internal Revenue Code Section 179, a 100% deduction can be claimed for up to $500,000 of equipment, point of sale systems, furniture, and fixtures that were placed in service last year. However, a depreciation stemming from Section 179, cannot be used to create a business loss for the restaurant or hotel.
An alternative to Section 179 depreciation is to claim a 50% bonus depreciation deduction on brand new fixed assets that were placed in service. A 50% bonus depreciation enables business owners to deduct 50% of the fixed asset’s cost; regardless, of whether the restaurant or hotel is profitable.
If a restaurant or hotel owner is leasing their space from a property owner, up to $250,000 of Section 179 depreciation or an unlimited amount of 50% bonus deprecation can be claimed on “qualified leasehold improvements” that are placed into service. A “qualified leasehold improvement” is any improvement that is:
• Made to an interior portion of the building
• Made to nonresident property
• Pursuant to a lease
• Made to a building that’s been in service more than three years
FICA Tip Credit
Restaurant owners can claim a tax credit if gratuities earned by their tipped employees are reported on their W-2 forms, and the employer withholds and pays their share of the Social Security and Medicare taxes. Social Security is equal to 6.2% of an employee’s compensation while Medicare is equal to 1.45%. The tax credit the restaurant owner would obtain is equal to the employer’s portion of the Social Security and Medicare taxes.
If tipped employees are paid less than the minimum wage, which is deemed $5.15 per hour for the “FICA Tip Credit,” any employer taxes paid on the portion of the tips that assists in getting an employee to the $5.15 minimum wage are ineligible for the tax credit.
It’s not uncommon for restaurants and hotels to pay their managers a year-end bonus contingent on the business’s performance. Restaurant and hotel owners that use the accrual basis of accounting can take a tax deduction by accruing 2015 performance-based bonuses to their managers. Any accrued bonuses must be paid before March 15, 2016, in order to claim the tax deduction.
Accrued Vacation or Sick Leave
Restaurant and hotel owners that use the accrual basis of accounting can take a tax deduction for any unused vacation or sick leave that is either used or paid out to employees before March 15, 2016.
Aronson LLC is available for consultation on tax and business management topics for restaurants. Please contact Aaron M. Boker, CPA at 240.364.2582 or firstname.lastname@example.org for more information.