Tag Archives: hospitality

It’s Still Here for Now — the Affordable Care Act!

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As President Donald Trump’s administration begins its work, rumors that most or all of the Affordable Care Act (ACA) could be repealed are plentiful. Over the next few months, the future of the law should be known. However, the ACA remains in place for 2017 and employers should move forward accordingly.

Currently in effect under the ACA, business owners with 50 or more employees who are either full-time (FT) or full-time equivalent (FTE) are required to offer health insurance coverage to their FT employees. FTEs are determined by dividing the total hours of all part-time employees worked in one month by 120. Seasonal employees are not included in this calculation.

While the test to determine coverage requirements is based upon calculating the number of both FT and FTE employees, employers are only required to provide health insurance to those employees who work 30 or more hours per week. In order to maintain compliance, health insurance coverage must pass these two tests.

  1. Minimum Value Coverage: The employer’s health insurance plan must pay out at least 60% of the incurred medical charges.
  2. Affordable Coverage: The employee’s contributions toward health insurance coverage cannot exceed 9.5% of their W-2 wage income.

Employers with 50 or more FT and FTE employees, who wait for the new administration’s plans for health insurance, may be underestimating the impact of potential penalties for not offering health insurance to all eligible employees. Employers who fail to offer appropriate coverage could face a penalty of $2,000 per year for each full-time employee, reduced by 30 if one or more FTs receive assistance from a Health Insurance Marketplace offered by the federal or state government.

The ACA is still law despite its uncertain future. Compliance is especially critical for employers in the restaurant, hotel, and manufacturing industries where large workforces are common. Business owners should continually evaluate their FTE employees and the cost to provide health insurance coverage to those eligible against the potential noncompliance penalties.

Look for future posts on how changes to the ACA will affect businesses. For individual questions or more information on how the ACA influences a restaurant, hotel, or companies that serve the hospitality industry, contact Aaron M. Boker at 240.364.2582 or aboker@aronsonllc.com.

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Tax Savings Strategies for Business Owners in the Hospitality Industry

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As business owners will have their 2016 corporate tax returns prepared in the upcoming months, there are several tools that could be used to help reduce corporate or personal tax liabilities. Here are some strategies that could save you money.

Implement and fund a retirement or profit sharing plan

Business owners can claim a tax deduction for contributions to fund retirement and profit sharing plans on behalf of employees or owners for calendar year 2016. Most plans don’t have to be funded until the tax filing deadline to claim the deduction.

Purchase and place fixed assets into service

Assuming the business is generating a profit, up to $500,000 of fixed assets such as computers, equipment, furniture, and fixtures that were purchased and placed into service before the end of the year can be fully depreciated per Internal Revenue Code Section 179. There is also a 50% bonus depreciation incentive available for new fixed asset purchases placed into service. The 50% bonus depreciation has no asset threshold and also includes leasehold improvements, which is any improvement that is:

  • To an interior portion of a building
  • Nonresidential property
  • Pursuant to a lease
  • In service
  • Prepay business expenses

Pay out accrued bonuses or wages before March 15

Business owners that use the accrual basis of accounting can deduct wages or bonuses that are accrued at year-end as long as they are paid out before March 15. This is an effective tax strategy that can defer the cash burden of paying year-end bonuses by up to 2.5 months, but also pay out additional compensation that rewards performance and can assist in employee retention.


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2015 Hospitality Industry Businesses; How Much Can You Save?

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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.

Manager Bonuses

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 aboker@aronsonllc.com for more information.

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Using Restaurant Servers’ Tips to Offset Credit Card Processing Fees

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Processing fees that are incurred by restaurant owners when a customer dines in and pays by credit card can get expensive and eat at a restaurant’s bottom line. The processing fees are based upon what customer pays on the both the food and beverage bills, as well any gratuity that is left for the server. Savvy restaurant owners, however, may have the opportunity to offset the portion of the credit card fees that is attributable to the servers’ tips.

Under the Fair Labor Standards Act (FLSA), when tips are charged on a credit card and the employer has to pay a credit card company a percentage on each sale, the employer has the option to pay the employees the tip less the percentage that was paid to the credit card company. Reducing the employee’s tips by the allocated portion of the credit card fee cannot reduce the employee’s wage below the required minimum wage.


A customer dines in a restaurant and the total bill is $100 before considering gratuity. The customer pays the bill on their credit card plus a $20 gratuity; a total of $120 is charged to the credit card. The credit company charges a 3% fee on all transactions to the restaurant, which would equal $3.60 for this specific transaction. Of the $3.60 credit card charge, $3 is for the bill (3% of $100) and $0.60 is for the tip (3% of $20). The employer could legally provide the employee $19.40, representing the $20 tip that was earned minus $0.60 for the employee’s pro-rated portion of the credit card charge.

While the FLSA states that an employer can reduce a server’s tips by a portion of the credit card fees, employers should proceed with caution depending upon the state where they are operating their restaurant. For example, the District of Columbia, Maryland, and Virginia do not specifically address whether an employer is or is not entitled to shift a portion of the credit card liability to the employee.

In other states across the county, there are varying provisions. The New York State Department of Labor specifically states that an employer is not required to pay the employee’s pro-rated share of the service charge and can deduct a pro-rated portion of the credit card fee from the employee’s tips. There are also states such as California and Massachusetts where the law requires the employer to pay all costs of doing business and not pass any costs such as credit card fees on to the employees.

Aronson LLC is available for consultation on year-end tax planning and business management topics for restaurants. Please contact Aaron M. Boker, CPA at 240.364.2582 or aboker@aronsonllc.com for more information.

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“FICA Tip Credit” Gives Restaurant Owners Tax Savings on 2014 Tax Returns

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Full service restaurant owners with employees who receive tips from customers have an opportunity to claim a highly favorable federal tax credit on this year’s tax return. Restaurant owners can claim the “Credit for Employer Social Security and Medicare Taxes,” better known as the “FICA Tip Credit.” This tax credit is equal to the Social Security and Medicare taxes paid by an employer on certain employees’ tips earned working in a restaurant.

What is a tip?

According to Internal Revenue Service Revenue Ruling 2012-18, tips earned by servers in a restaurant are defined as:

  1. Payments made free from compulsion
  2. A payment the customer has unrestricted rights to determine the amount
  3. Payments not the subject of negotiation or dictated by employer policy
  4. A payment the customer has the right to determine who the recipient is

As an employer, what am I required to do with the tips collected?

When tips or gratuities are collected, employers are required to distribute the funds directly to the employees who earned them. Tips that are distributed are considered compensation to the employee, requiring the employer to withhold 4.2% for Social Security taxes and 1.45% for Medicare taxes. The employer is also required to pay their share of the employment taxes, which is equal to 7.65% (6.2% Social Security and 1.45% Medicare) of the total compensation paid out to employees.

How is the tax credit calculated?

The employer’s share of the employment taxes on the tips disbursed to the employees would be the amount of the “FICA Tip Credit” the employer can claim on Tax Form 8846 ‘Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips.’

Example  1

Café Burger is a sit-down restaurant where there are employees hired to serve food and beverages. In 2014, the restaurant collects $400,000 in gratuities that were distributed to the employees. The restaurant withholds both Social Security and Medicare Taxes from the employees’ gratuities  distributed as compensation and pays their 7.65% (or $30,600) share of the employment taxes. Café Burger’s “FICA Tip Credit” is equal to the $30,600 that they paid on the employees’ tips.

However, if tipped employees are paid less than minimum wage designated for the tax credit, the credit is reduced by the employment taxes the employer would have paid on the difference. The IRS designates $5.15 as the minimum wage for the “FICA Tip Credit.”

Example 2

Assume the same facts as Example 1 above, but also assume $100,000 of the $400,000 in gratuities distributed to the employees was used to meet the $5.15 minimum wage threshold. Only $300,000 of gratuities would be eligible for the “FICA Tip Credit” and the credit would be equal to $22,950 or 7.65% of employer Social Security and Medicare taxes withheld on $300,000 of gratuities.

Where does the tax credit go on my corporate tax return?

Restaurant owners who are incorporated as C-corporations would use the credit to directly reduce the tax liability on the face of the tax return. S-corporations and partnerships would pass the credit to its shareholders or members via their respective K-1 schedules. The shareholders or members would then claim their share of the tax credit on their personal income tax returns.

What types of payments do not qualify for the tax credit?        

All restaurant owners wanting to claim the “FICA Tip Credit” should be aware that the following payments received by employees are not considered tips eligible for the tax credit:

  1. Tips that are used to meet the federal minimum wage
  2. Distributed service charges to employees

Service charges are mandatory adds-ons to a food or beverage bill.  An example of a service charge is an automatic 18% charge added the bill for parties of 8 or more. Effective beginning in 2014, Internal Revenue Service Revenue Ruling 2012-18 states that service charges received by a restaurant are deemed as business income to the restaurant as opposed to the employees. Any amounts distributed to the employees are treated as regular wages and are not eligible for the tip credit.

Aronson LLC is available for consultation on year-end tax planning and business management topics for restaurants. Please contact Aaron M. Boker, CPA at 240.364.2582 or aboker@aronsonllc.com for more information.

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