Five Tax Tips for Restaurants

There’s always plenty to talk about with your accountant when tax season rolls around. The tax pros at Grant Thornton LLP suggest you familiarize yourself with a few specific issues so you can manage your restaurant’s tax burden, both current and future, more effectively.

Not all of the well-considered advice from international accounting giant Grant Thornton will apply to every business. But enough of it might that we suggest you take a closer look. At minimum you want to make sure your accountant or tax adviser is leaving no stone unturned as he or she prepares your restaurant’s 2010 return and helps you plan for 2011.

Here are five topics that could have a big impact on restaurant tax bills this year.

1. Take advantage of enhanced depreciation opportunities. Recent legislation has provided generous new depreciation provisions that may allow hospitality companies substantial deductions on investments in their businesses. Property qualifying for bonus depreciation that is placed in service after Sept. 8, 2010, and before 2012 will be eligible for full 100 percent expensing. The Section 179 expensing limit has also been increased to $500,000 for tax years beginning in 2010 and 2011. This limit is reduced on a dollar for dollar basis by the amount of total qualified property over $2 million.

2. Bring your health care plan into compliance with the Affordable Care Act (aka Health Care Reform).The health care reform bill ushered in a whole new set of requirements for employer sponsors of health care benefit plans. Proper planning will be important not only to avoid the penalties for noncompliance ($100 per day per participant) but also to ensure decisions on implementation keep you as competitive as possible.

3.Review executive incentive strategies.In the wake of the recession and the microscope on executive compensation, many hospitality organizations are shifting executive pay away from fixed costs (i.e., salary, deferred compensation and defined benefits) and plain vanilla equity (i.e., stock options and restricted stock units).The trend is to reward directly for creation of company value.

4. Review your state filing requirements. Many states are changing their corporate tax laws. In 2009, West Virginia, Wisconsin and Massachusetts moved from separate to unitary combined group reporting, and other states are considering such a move. Several states have moved from an apportionment formula based on property, payroll and sales factors to a formula that gives more weight to sales. These shifts in methodology may have a significant impact on your state tax liability.

5. Expect FICA tax notices on unreported tips. The IRS has announced that in the coming months, restaurants, hotels and other hospitality-based employers can expect to receive a notice for their share of the FICA on unreported tips arising from a new requirement that employees include the Federal Employer Identification Number of their employers when reporting tips on Form 4137. Employers will receive “Section 3121(g) Notice and Demand” with the amount of FICA taxes to include on their next Form 941. No interest charges or penalties will be assessed if the employer properly reports the taxes on the next Form 941.

“Companies should work with their tax advisers to determine how these issues might apply to their business,” suggests Amy Roberts, a hospitality tax partner based out of Grant Thornton’s Minneapolis office. “Being aware of issues and opportunities will avoid surprises and hopefully lead to tax savings.”

Grant Thornton has additional tips available on its website that could be factors for many restaurant businesses. You can find the full list at www.grantthornton.com/CRHtaxtips. You may also wish to review some of the many full-service restaurant-specific tax stories we’ve run in Restaurant Hospitality over the past few years. You can find the list of what’s available at restaurant-hospitality.com/searchresults/?terms=tax&rp=.