29 Jun July 4 Plus More Tasty Tax Tips
July 4, 2019: Happy Birthday America. Gavrilov & Co sends to you, our clients, friends, and blog readers, Happy July 4! We hope that Independence Day brings your family, fun, fireworks, and food as we honor the Birthday of this country.
Each holiday brings its own special food. And July 4 brings us food in the same colors as our patriotism: red, white and blue. The lush and colorful fruits and vegetables of the season remind us. We know that restaurants and food stores are stockpiling the goodies even as we publish this blog which honors July 4.
May July 4 Bring You Food, Fun, Family, and Fireworks–Plus Just the Tasty Tax Tips You’ve Been Seeking for Your Restaurant or Business!
We can almost taste the grilled burgers and toasted buns. Likewise, we anticipate the fireworks soon to illuminate the Manhattan skyline. It’s almost Independence Day. So, this blog brings you greetings for Independence day and a continuation of our previous blog. So, this is Part 2 of the tasty tax planning tips and 4 July Fireworks Celebration.
We also are continuing information that pertains to one of our honored niches of clients and business owners: The Restaurant Industry.
A Quick, Red, White and Blue Review
In our previous blog, we brought you a definition basic definition of tax planning: Tax planning is “an assessment of your financial situation from a tax perspective for the purposes of reducing how much money you owe the government. Legally, of course.”
Then we explained the basics concerning how to work with tax planning. We covered:
- Tax Planning Tip 1. Pass-Through Tax Treatment/Section 199A
- Likewise, in our tasty tax planning tip 2, we brought you some strategies for Depreciation Bonus Depreciation and section 179.
Thus, we suggest that you might want to read or review those two first Tasty Tax Planning Tips for restaurants before proceeding with the tips in this article.
July 4, Tasty Tax Tip Number 3: Net Operating Losses
In figuring Net Operating Losses, from tax years beginning after December 31, 2017, the law limits net operating loss deductions to 80 percent of taxable income. (We determine that taxable income without regarding deduction.) Likewise, your restaurant losses which occurred after December 31, 2017, can only be carried forward.
A Menu of NOL Tax Planning Opportunities planning opportunities include:
The NOL Boomerang Effect
First of all, Gavrilov & Co reminds you to be aware that due to the 80 percent limitation mentioned above, there could be a price to pay if you generate significant losses in one tax year. You see, that might result in amassing taxable income in the next year. Then you might need to scrape up unexpected cash to pay the resulting tax liability.
So, remember what you learned in part one. The examples of managing this could include electing out of bonus depreciation.
- You would do that in years your restaurant had large capital expenditures.
- Likewise, you might delay some deductions into the following tax year. Then your losses could be spread over a span of time instead of taken in one year.
Tasty Tax Tip Number 4: Business Losses
Not only restaurants but individuals are now only allowed to take K-1 losses from flow-through entities in the current year. Even this point has its limits:
- They cannot exceed your gross income and. or
- Furthermore, they cannot exceed $500,000 for if you file jointly or $250,000 for individual taxpayers.
And, now that you have the big picture, consider the same planning ideas mentioned above for NOLs when planning and budgeting yearly expenditures for your pass-through entities.
July 4, Tasty Tax Tip 5: Corporate Income Tax Rates
Due to the TCJA, the government permanently reduced the maximum corporate tax rate from 35 percent to a flat tax rate of 21 percent.
As you might already know, this rate cut reduces the tax burden for most restaurateurs, provided you qualify as C corporations. “Restaurants can now redeploy the tax savings from this rate reduction to other areas such as expansions, remodels or compensation adjustments.”
Tax Tip 6-Corporate Alternative Minimum Tax (AMT)
There’s a whole menu of interesting details to digest about the corporate AMT. “An alternative minimum tax (AMT) recalculates income tax after adding certain tax preference items back into adjusted gross income.”
- In other words, AMT operates a separate set of rules by which to calculate your restaurant’s taxable income after allowed deductions.
- Then, preferential deductions will be added back into the taxable income to calculate his or her alternative minimum taxable income (AMTI.)
- And finally, the AMT exemption is subtracted to determine the final taxable figure. If you want details on how this works for an individual, check out this linked reliable online tax resource.
- The corporate AMT was repealed effective for tax years beginning after December 31, 2017.
- Going forward, any AMT credit carryovers may be used to offset the regular tax liability for any taxable year after 2017.
The Complex AMT Tax Planning Recipe, Broken Down:
Additionally, the Tax Squad at Gavrilov & Co wants you to know that AMT credits you created in prior years are also refundable. This works for any taxable year beginning after 2017 and before 2022. But it only works for an amount equal to 50 percent of the excess credit for the taxable year.
(However, we must add you could get 100 percent for taxable years beginning in 2021.) In summary, all of these changes in the AMT credit could “result in lower taxes or possibly a refund for restaurants organized as a corporation.”
After the July 4 holiday, you can expect us to offer you four more of these delicious tax tips, served here at Gavrilov & Co. suitable for your restaurant as well as other businesses. Until then, we would be remiss if we did not leave you with a few more July 4 thoughts:
Have a Safe, Happy and Delicious July 4!
In our celebratory and patriotic mood, we bring you yummy trivia statistics that match a highly popular July 4 activity, namely, eating:
First, according to the National Retail Federation, Americans will spend 6.9 billion dollars on food and drink for the 4th? Do you know who the current reigning champs for Nathan’s 4th of July Hotdog eating contest? They are Joey Chestnut (72 Hotdogs) and Miki Sudo (41 Hotdogs).
And here is a final bit of trivia. Americans will spend about $150 million on watermelon to celebrate the coming weekend… A weekend of food, family, and fun.
Seriously, the focus of July 4 seems to be food, fun, family, and fireworks. Most of us know, there is a deeper meaning to July 4, Independence Day.
We also must mention that July 4 recognizes the best qualities in the USA. These are our courage, our ingenuity and our undying love of freedom. President Reagan might have said it the best when he stated,
“Freedom is never more than one generation away from extinction.
We didn’t pass it to our children in the bloodstream.
It must be fought for, protected, and handed on for them to do the same.
Or one day we will spend our sunset years telling our children and our children’s children
what it was once like in the United States where men were free.”