While many American businesses have been impacted by COVID-19, the restaurant industry is among those hit hardest. In response, many restaurants adapted to shutdowns across the country by offering drive-through or curbside pick-up, allowing them to remain partially open and serve customers who were sheltering in place. As restaurants begin to reopen, they are presented with both new opportunities and challenges. While daily operations will continue to be a top priority, restaurant owners should keep in mind a few tax topics that may be helpful in managing these unprecedented times.
Work Opportunity Tax Credit (WOTC) — As you reopen and rebuild your workforce, this credit is available for organizations that hire individuals from various eligible groups (such as long term unemployment recipients, qualified or disabled veterans, qualified ex-felons, etc). The application must be submitted within 28 days of the employee start date, and credits range from $2,400 to $9,600 per qualified new hire. These credits are available for new employees who have not previously worked for the hiring employer and work a minimum of 120 hours in their first 12 months of employment. This credit covers temporary, seasonal, part-time and full time employees.
Employee retention tax credit (ERTC) — Eligible organizations with full or partial operations can claim a tax credit of up to 50% of employee compensation, with a limit of $10,000 paid to a particular worker and can be claimed retroactively. Businesses participating in the Payroll Protection Program (PPP) do not qualify for this credit.
Qualified improvement property (QIP) — A recent correction to the Internal Revenue Code allows QIP to qualify as 15-year property and makes QIP eligible for bonus depreciation. QIP assets placed in service during 2018 also qualify for 15-year bonus depreciation treatment — however, additional steps, such as amending returns or a change in accounting method, must be considered.
Business interest limitation — The overall limitation on business interest deductions has been increased from 30% of adjusted taxable income to 50% for years 2019 and 2020.
Excess business loss limitation (EBLL) — The CARES Act has suspended the EBLL through 2020.
Net operating loss (NOL) carryback — NOLs can be carried back to the preceding five years for years 2018 – 2020. This carryback applies to businesses as well as individuals. The IRS will accept a quick carryback claim or amended returns to carryback these losses.
Payroll tax deferral – This deferral applies to payroll deposits related to the employer’s share of the Social Security tax until December 31, 2020. Fifty percent of the deferred taxes must be deposited by December 31, 2021, and the remainder by December 31, 2022. Businesses participating in the PPP are allowed to fully participate in this deferral through December 31, 2020 (they were restricted until a recent law change).
How CliftonLarsonAllen LLP can help
It’s been a challenging year for the restaurant industry, and the ever-changing landscape makes it difficult to plan accordingly. With a plan, you can begin to chart your path forward. CLA professionals are here to provide guidance and help you develop a financial reopening strategy that’s right for you.
The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CliftonLarsonAllen) to the reader. For more information, visit CLAconnect.com.
CLA exists to create opportunities for our clients, our people, and our communities through our industry-focused wealth advisory, outsourcing, audit, tax, and consulting services. Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor.
Karen Blacik has more than 25 years of experience as a financial leader in restaurants (Famous Daves) and retail (Wilsons Leather) industries. She has worked in public and private businesses in those industries, demonstrating her technical accounting, innovative technology, process development, strategic and cross-functional team leadership skills. She also had a stint in public accounting at PwC in both audit and international SEC practices.
For more than 15 years, Rachael O’Leary has been building her understanding of the intricacies of federal, state, and local tax. Her knowledge enables her to provide sound tax advice while weighing the pros and cons of particular decisions and the impact the decision will have on her client’s tax responsibilities. This experience is especially valuable when working with pass-through entities as she balances the tax responsibilities of the individual and the business.