If you operate a hospitality business, you should make sure you’re getting all of the tax benefits that you’re entitled to.
So, take a look at the following benefits and ensure you find out more about any for which you’re eligible.
Since the Tax Cuts and Jobs Act of 2017 was introduced in the U.S., hospitality businesses are now able to fully expense specific capital expenditures rather than see them depreciate over time.
Expenditures like used property acquisition could be fully expensed, beginning with assets that were placed in service after the date of September 27, 2017. You need to be quick to take advantage of this benefit, though, as bonus depreciation will start phasing out for assets that are placed into service after the date of December 31, 2022.
Employee Retention Tax Credit
Employee Retention Tax Credit was created by the Coronavirus Aid, Relief, and Economic Security Act to help businesses keep workers on the payroll. The Employee Retention Tax Credit is a refundable tax credit that’s available to qualifying businesses, including eligible hospitality businesses.
Based on certain factors, like qualified wages and employee caps, some business owners can receive a percentage of the qualified wages they pay to their employees. To qualify, you’ll need to prove that your business was negatively impacted in one of the listed ways. So, take a look at this helpful article to find out if you can take advantage of the ERC.
Section 179 Expensing
As of 2018, hospitality businesses have been legally allowed to deduct the cost of qualifying property, up to a value of $1 million, that’s placed in service during the given tax year.
Furthermore, eligible business owners can purchase business property worth up to $2.5 million due to the Section 179 deduction.
The eligible costs were expanded under the Tax Cuts and Jobs Act of 2017 to help business owners make property improvements. Seeing as property is often crucial to business owners in the hospitality industry, Section 179 spending could be very helpful to you.
Eligible property includes specific depreciable tangible property that is predominantly used to furnish lodging. It also refers to qualifying costs, such as fire alarms and HVAC systems.
199A Tax Deduction
The Tax Cuts and Jobs Act also provides pass-through business owners with the 199A tax deduction. In specific situations, you could receive a deduction of up to 20% on eligible business income if you run a business that is a sole proprietorship, partnership, or S corporation.
There are limitations to the amount of taxable income you can receive deductions for, though. There are also limitations in place for things like the amount of W-2 wages of your business and the unadjusted basis immediately after the acquisition of eligible property held by your business.
So, spend time researching the 199A tax deduction to see precisely what’s included and limited and find out if your hospitality business qualifies.
If you run a hospitality business like a hotel or restaurant, you could be eligible to claim a credit for Medicare taxes and social security that is paid or incurred on specific employees’ tips.
The credit is an element of the general business credit.
To qualify for tip credit, you need to have employees who receive tips from customers for providing, serving, or delivering beverages or food and you need to have, during the tax year, paid or incurred social security and Medicare taxes on those employee tips.
Work Opportunity Tax Credit
More commonly known as WOTC, the federal Work Opportunity Tax Credit is available to any employer who hires employees from specific target groups.
Those target groups include people who have historically faced employment barriers or discrimination in the workplace. To qualify, you need to apply to the State Workforce Agency for a certificate for each employee you hire.
You’ll need to receive the certificate by the day the employee starts work or complete IRS Form 8850 on or before the day that you offer the person the job. For the latter, you’ll still need to receive the certificate before you’re able to claim the credit.
Qualifying employees include, but aren’t limited to, ex-felons, designated community residents, recipients of long-term family assistance, recipients of supplemental security income, and recipients of long-term unemployment benefits.
The Research & Development Tax Credit
One last tax benefit that your hospitality business may be eligible for is the Research & Development Tax Credit. The incentive is specifically for hospitality businesses.
Its purpose is to help hospitality businesses invest in research and development activities in order to grow and increase their competitiveness. You may be able to take credit up to 13% of qualifying spending for new and improved processes and products.
Though, your research and development must meet certain criteria to qualify. If you’re successful in your application, you could be eligible for expenses that cover employee wages, the cost of performing tests, the cost of supplies, contract research expenses, and more.
If any of the above tax benefits sound as though they can help your hospitality business, you should most certainly find out more details about each and look through the eligibility criteria.
Getting all the tax benefits you’re entitled to could make a huge difference to your business.
To recap, you could be eligible for:
- Bonus Depreciation.
- Employee Retention Tax Credit.
- Section 179 Expensing.
- 199A Tax Deduction.
- Tip Credit.
- Work Opportunity Tax Credit.
- The Research & Development Tax Credit.
Now that you know how to take advantage of tax benefits, you might be interested in learning why innovation management is so crucial for hospitality businesses and finding out how to safeguard your employees.