The hospitality industry knows better than most that there are often additional taxes imposed on things such as lodging and other special fees on hotels and restaurants. While these taxes may seem daunting and unavoidable, there are certain things you can do to better manage your tax burden.

Tax Tips:

1. Enhanced depreciation opportunities- Businesses that have expanded or renovated their facilities may be able to maximize the tax deduction. The $500,000 expensing limit for Section 179 property has been extended through 2014. This includes improvements that might otherwise have a longer depreciable life when the investment includes “qualified restaurant property.” Current law has the expense limit reverting to $25,000 in 2015 unless new legislation is passed.
2. New ACA requirements kick in January 1, 2015 – Employers have additional record keeping and reporting responsibilities. Penalties will apply for employers with 100 or more full time equivalent employees (FTEs) who fail to meet the new health care requirements. Employers with 50 or more FTEs will need to gather information in 2015 in order to complete informational reporting requirements at the end of the year. Smaller establishments beware because the “common control group” rules can combine multiple locations and bring the number of FTEs into the applicable range.
3. Look over existing executive incentive strategies- Many companies in the hospitality industry are shifting executive pay away from fixed costs like salary, defined benefits, and deferred compensation and “plain vanilla” equity like stock options and restricted stock units and are instead steering towards direct rewards for contribution to company value. Multiyear performance plans (typically 2-3 years) are becoming more popular and are more frequently linked to cash flow, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) or return on capital employed.
4. Donate food instead of throwing it away! - In the likely event that your hotel or restaurant has a food surplus, consider donating the unused food to charities. In doing so, you will be giving back to your community as well as qualifying for a tax deduction. Provided the food meets federal food safety guidelines, your business will qualify for a tax deduction for the basis of the donated food inventory as well as half of the appreciation.
5. Take advantage of tax credits to reduce payments – The work opportunity credit was extended into 2014. It can be used to offset tax for businesses that employed members of “targeted groups” – these include veterans or members of families who have been recipients of certain government benefits. The employer tip credit aka FICA tip credit continues to benefit restauranteurs.
6. Evaluate your accounting methods, especially UNICAP- Uniform capitalization (UNICAP) or Section 263A, an inventory capitalization, can apply to restaurants and hotels. Be sure to review your business’ policies regarding inventory capitalization to find any areas of risk before the IRS does. A taxpayer can secure what is called “audit protection” by filing a voluntary accounting method change. In doing so, you can avoid penalties and interest that a faulty accounting method would incur.

Other factors will likely affect your taxes, namely specific laws and regulations unique to your location. For more information on your tax obligations unique to the hospitality industry, contact any member of our Hospitality Services Group.