By: Jeffrey Bronswick, CPA, MBA
In an ever changing business environment where food prices are rising, competition is increasing and margins are shrinking, it is important to take advantage of all of the tax benefits available to help restaurant owners. However, when owners do not get the proper guidance, you miss opportunities that can improve your cash flows immensely. Keep these important tax tips in mind as you continue on in 2012.
These important tax benefits will help restaurant owners plan for business expansions or potential business renovations as they continue to monitor how the economy is performing in 2012:
1. Immediate expensing of depreciable assets: Under Section 179 of the tax code, restaurant owners can elect to deduct (expense) the cost of qualifying assets purchased and put into service in the current tax year. This is an alternative to claiming regular depreciation deductions. Here are a few important points to note about Section 179 deductions in 2012:
- Expense 100% of the cost of qualifying assets purchased and put into use in 2012, up to $139,000 of qualifying new and used equipment and off-the-shelf software
- Section 179 is limited to taxable profits
- There is an investment limitation on Section 179 – $560,000 in 2012 – investments over this limit will reduce the available Section 179 deduction dollar for dollar
- Financed and leased equipment under a capital lease also qualify for Section 179 treatment, and it may be the better financial strategy for some since the full amount of the deduction can be taken without using up a significant amount of cash
2. Bonus depreciation: in 2012 is now limited to 50% the cost of new assets purchased and placed in service in the current tax year. Bonus depreciation will still come in handy to those business owners who do not qualify for Section 179 due to investment limitations or the taxable profit limitation. Here are a few important points about bonus depreciation in 2012:
- Bonus depreciation allows an immediate deduction of 50% of the cost of qualifying new assets purchased and put into service in 2012 – with no limitation on the total amount spent
- Unlike Section 179, bonus depreciation applies to new assets only, includes both tangible and intangible property, and can be used even if a restaurant has no taxable profit
- Bonus depreciation can be taken in addition to Section 179 as long as the asset is eligible for both benefits to bypass the $560,000 limit on the Section 179 deduction
Note: In June, 2012 the House introduced an extension of the 100% bonus depreciation.
Other benefits that restaurants often fail to take advantage of are:
3. Health Care Credit: With rising health care costs, another important tax benefit for restaurant owners is receiving a tax credit for a portion of the cost of providing health care to employees. This credit is available through the Affordable Care Act, which allows for a 35% credit on the cost of health insurance premiums for their employees is available for the 2012 and 2013 tax years. A tax credit is superior to a tax deduction as a credit is a dollar for dollar reduction of the actual tax owed to Federal government whereas a deduction only reduces the income subject to tax. To be eligible, a restaurant must also meet the following requirements:
- Have less than 25 full-time equivalent employees (a full-time equivalent employee is figured by taking the hours worked by the employee divided by 2,080 hours, not to exceed greater than 1 full-time equivalent employee per person)
- Pay at least 50% of the health insurance premiums of employees
- Have annual average employee wages less than $50,000 (the credit is reduced proportionately for average wages over $25,000, up to a ceiling of $50,000)
- Currently provide a qualified health care contribution arrangement where the employer contributes the money not pursuant to a salary reduction arrangement
4. Tip Credit: As many restaurant owners know, they are required to pay FICA taxes on cash tips earned by their employees. The good news for restaurant owners – the IRS allows a non-refundable credit for the FICA taxes paid on tips earned by employees. Under the general business credit, restaurant owners are allowed to claim a nonrefundable credit equal to the FICA taxes paid on employee tip income. The only stipulation here is no credit can be taken for any FICA taxes paid on employee tips needed to meet the Federal minimum wage rate of $5.15 (this only applies if a restaurant owner pays its employees less than the Federal minimum wage rate).
Jeffrey Bronswick, CPA, MBA
Jeffrey D. Bronswick is President of Bronswick Reicin Pollack, Ltd. – Certified Public Accountants and Business Advisors located in Buffalo Grove, IL. Bronswick Reicin Pollack has helped hundreds of businesses and organizations with their financial concerns. Visit www.brp-cpas.com or call 847-808-9800.
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