Yikes! It's TAX Crunch Time!
What do you need to do to put your business in the best tax position before you file?
Many of you may be last minute filers and you can still get the job done. But if not, no worries… know that you have until September to file an extension. If you do, you can still take full advantage of all the advice in today’s episode.
Listen to my guest Mr. Tony Perricelli. He’s a CPA and Tax Expert with many restaurant and hospitality clients. He knows the restaurant business and is a tremendous resource and wealth of information.
We discuss last minute tips for 2017, big changes from the Trump Administration for 2018 that can be a real benefit to your business and much more.
Take a listen to this episode to be sure your financial house is in order and that you are in the best tax position possible.
Also, Here’s a a link to Tony’s recent article “5 Things Every Hospitality Business Owner Should Consider in the Tax Reform Law”:
And...if you’re looking for an experienced hospitality CPA, Tony’s your man. Contact him here: firstname.lastname@example.org
Now go out there and Rock Your Restaurant!
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EPISODE #107 TRANSCRIPTION
[Start of Transcript]
You’re tuned in to the Restaurant Rockstars Podcast. Powerful ideas to rock your restaurant, here's your Host, Roger Beaudoin.
ROGER: Welcome back this is the Restaurant Rockstars Podcast and we're all about helping restaurants build their brands, rock their profits and deliver amazing guest service experiences.
We all know that it's tax time and I don't need to remind anyone of that fact, so you know this isn't always a pleasant time of year for most of us you know we're busy running our businesses and we don't really have the time to keep up with Tax Laws or the changes perhaps unless you're following the news, but even then there's so much detail to this, it's really about you know enlisting the help of an expert so no worries, I've actually got an expert on the line today, my guest is Mr. Tony Perricelli, he's a CPA and a tax expert from a firm called Scott & Company they’re in Columbia South Carolina, welcome to the show again Tony
TONY: Thanks, I’m glad to be here Roger
ROGER: Yeah, I'm really happy you know Tony it was almost a year ago coming up this May that we had you on the show the first time and you know we talked a lot about how to put your books in order throughout the year to give yourself the best tax position at the end of the year and now it's kind of a last minute thing that we know that lots of people are sort of scrambling to get their taxes in, so I'm really glad to have you on the show, you work with many restaurant clients today so you understand our business and you're in a great position to really help the audience with the last minute advice, so the tax deadline is next week but I understand that you can extend until September is that correct?
TONY: Yes, that's correct if you have a corporation or partnership that you're using to run your business through, the D-day is next week March 15th but you can extend for 6 more months through September 15th so that's an option. Now, if you have a C-corporation which is kind of the old fashioned corporation or what one of the larger companies might use those tax returns are not due until April 17th this year because of the weekend and holidays sort of 15th-17th.
But for most folks who are running out you know closely held businesses, it's going to be an incorporation/partnership and so March 15th is the deadline.
ROGER: Let me ask you when you mentioned partnerships Tony for the uninitiated I’m I clear in saying that you're also considering limited liability companies or LLCs?
TONY: Yes that's correct, so LLC actually is a creature of whatever state you're doing business and it's not a the IRS doesn't even really recognize such a thing as an LLC so LLC is taxed as either a partnership or a corporation or in some cases that they're just one owner, it can be a sole proprietorship. So yes, when we talk about corporate and partnership tax returns, it's just a taxable entity type, it's not necessarily LLC can be acquired and there's not necessarily the state entity type that you're talking about.
ROGER: Perfect! OK. So then, that means that so as Corps and partnerships LLCs all those have the March 15th deadline which is approaching next week and we can extend until September the 15th that's terrific. [Correct] Let me ask you if a company chooses to extend their return, are they more likely to trigger an audit by doing so are there any steps that have proven up?
TONY: I believe that I've never seen any research or anything that you know absolutely proves that or not I don't know that if there's any way to do that unless you actually work with IRS I don't, so in general, I recommend that if you need more time ask for it you know there's nothing wrong with getting an extension, it's automatic and in my experience of doing this almost 20years now, I've never seen any patterns that show me that it's more like you're more likely to get audited, but what I will throw out there though is it is a big advantage with filing an extension is you have more time to potentially actually save a little bit of tax dollars from last year even though where 2017 is over and done, there's actually an opportunity that some companies might have to fund a retirement plan for the owners and even some of the employees potentially.
So, there's a certain type of plan called EPP, simplified Employee Pension Plan and it's basically like an IRA and what that does is it functions just like an area where you can contribute money to a fund and it's there's a tax deduction upfront and then you the growth in that account over the course of many years as you continue to expand or as you and invest in various stocks, bonds, mutual funds, this kind of things.
The growth is not tax sheltered from tax until you withdraw it when it's time to retire and you can do that at any time after age Fifty Nine and a half just like a regular IRA or 411K. So, the normal deadline for contributing to one of those types of plans is March 15th or in the case of the C-Corps April 15th but if you can stand like we just mentioned the 6month extension that also gives you more time to contribute to a set plan through the extended deadline which is September 15th so in theory you could, you can actually you know be August, September and contributing money into the set point and you're getting a tax deduction for last year which is really good, the timing on that it is great because you're spending money now and being a tax deduction in the prior year better to have a deduction earlier than later so that's very helpful.
ROGER: That is a great thing and I'm really glad you brought it up; what are some of the other ideas or last minute tips we can talk about, well we're still in 2017 whether you choose to file next week or you file that extension before we move on to the new Trump administrations changes?
TONY: Well, one of the thoughts that actually talked a lot about this something last time I was on is related to property and how property is depreciating and one of the things that we can do after the fact is do a what's called a cost segregation study, I think we may have talked about that last time.
Basically, that study is something that you do to get an expert who knows a little bit about engineering a little bit about accounting and tax kind of across discipline type thing and they do a study to break down the components of a building so if you own your own real estate or if you've got significant renovations that you've done to leased space then they can take that and break it down into components that can be depreciated very quickly because normally, Real Estate is depreciated very slowly especially commercial real estate, it takes a long time so if you spend a couple million dollars you won’t you know basically be able to deduct that for 30-39years it takes a long time because the segregation study can shorten that time down to maybe 5-7 years for certain percentage of those cost.
Now that's something that can be done after the fact now that the depreciation itself is not anything you, it's not a deduction you're taking later for earlier year, it's just you can still do that calculation any time before you prepare your tax return so you getting an extension can give you an extra amount of extra 6months of time to get that study done and so that you can have a better result for your depreciation.
Also, you can try to talk about this later we get into the new tax law, there's actually one component of the new tax law that went into effect as of September 27th of 2017 as one of the bonus depreciation rules, the updates on the bonus depreciation that we could talk about that later but that's something that we've actually already been doing with some of the returns we're preparing this year for 2017, we've gone ahead and looked back and if those equipment or some of the Real Estate components were purchased after basically in the 4th Quarter of 2017, they're ultimately for some of the new rules which are a lot of opportunities available for some of the new rules to quickly depreciate the Real Estate costs.
ROGER: I definitely want to get into that while we're talking about extensions, I'm actually thinking of filing an extension myself you know this is something that I’ve working on for well I really start this whole process of getting my books in order, I mean I work on them throughout the year but just really starting to plan with my CPA in November but you know this is a crunch time and no matter how big your firm is you have so many clients and you really want to offer every client individual attention, you want to give them the benefit of every possible you know tax benefit that you can, so when things kind of calm down after the April or early March deadlines have passed, do you find that you know you spend more time and a return to give it a little bit more detail than when you've got a pile of thirty returns on your desk, give me how would you answer that?
TONY: Yeah I guess what I say I mean obviously at this time of year things are very, very busy and we're trying to move things along as quickly as possible while still maintaining high quality of service [Right] we certainly don't sacrifice that.
That being said, you know if I'm sitting in my office and it's May or June or July and you know there's not a lot of pressure on me I can kind of take my time, really concentrate on what's going on and it does allow for a greater sense of just focusing in on what's important to the client and what we can do to save money and also I think two it gives us a better opportunity to do planning for the New Year.
Now that being said, there's some value for having prior your numbers finalized and available early in the year so the earlier you do your planning the better, but if it's if a choice between sitting down for 5minutes and quickly going over something because we've got you know 30 other returns like you mentioned that have to be done or having the time you know during the summer or early fall to take more time sit down for an hour to really talk about what's going on, yes certainly it does help out to have that additional time.
So there's pros and cons both ways you know in some cases we have requirements from banks or companies and things like that that may not so much in restaurants but maybe in construction or other industries depending on the industry but for restaurants specifically you know sometimes the banks are requiring tax returns to be done early and submitted to them so they have all the information for their underwriting to renew loans things like that, so sometimes we don't have a choice, we have to get it done [Sure] but yeah it definitely does there are situations where it is nice to have that extra time available so I would say don't all shy away, I guess my advice is don't shy away from any extension for like you mentioned before, I don't think there's really any fear should be any fear of additional audit scrutiny by the IRS or your state or anything thing like that, it is an automatic saying you know it's not going to get rejected, the only thing you have to watch out for though is as you do your personal tax return because generally if you have like an S-Corporation, a partnership you would also have to extend your personal term because you're going to have the information from that business return to put on your personal return so you have to extend both.
Just be careful, make sure that you don't have to make the payments any kind of estimated payments that you might have due for the prior year and for the current year because you going to watch out for that for 2018 and you know the current year, the first quarter payment is due in April 15th so you don't want to get well into the middle of the year not having made any payments for the current year and kind of get yourself behind the ball there with not getting behind on your payments so even though you're not filing your returns, you still need to pay attention to estimating your profits and your taxable income and maintaining your payment schedule so that doesn't fall far.
ROGER: That's a good point and I remember running into that with my own business as well. You talked about depreciation, I believe we were just talking about you know a long term depreciation on property buildings because obviously land is not the depreciable entity but what about equipment and purchases that a business makes throughout the year and they have to put together the depreciation schedule lists every single item on it and if you perhaps which account does that information follow you from last year to this year and you have to start from scratch and recreate that so that they don't lose any depreciation?
TONY: Sure yeah, that's very common we often communicate with prior Accountants and get the depreciation listing from them because you want to stay consistent from year to year and that's what the IRS requires. So, if you're purchasing new equipment and so you want to take a bigger write off as you can, as quickly as you can so it's good Book-keeping and Accounting practice to go ahead and record those things and make sure you've got good records of what it is that you're purchasing and what it’s uses and when it's in service and of course obviously how much it costs and so then you can now depreciates quickly as possible.
But yes, certainly that's something that you want to carry over such an account, it doesn't change anything, it doesn't reset the depreciation or anything like that, it just doesn't need to transfer that information from the old account
ROGER: And not have it last, is it still for 5years on new equipment and they say that the usable life is just about depleted and it's got a zero value or can you explain?
TONY: Right for IRA's purposes most pretty much zero it's a just about all restaurant equipment going to 5years depreciation life so that's you know it's a pretty fairly short life but I'm sure in most cases that's probably pretty accurate for a lot of types of equipment that are being used hard on a daily basis and in a restaurant environment.
ROGER: Let me ask you Tony, in my business you know when I ran restaurants for so many years, I purchased some new equipment, I purchased some you know re-conditioned equipment then that still had a usable life does the does that change? Let's say I bought a you know a Hobart mixer to make pizza dough in it and those things last forever, they're pretty much bombproof, well it just say I bought a 10year old mixer and maybe I paid $2000 for it, is there any depreciable life left to something that's already over 5years old?
TONY: Yeah it's, the 5year rule is when you purchase it so [I see] they're going to do yeah that resets for years so if you someone can buy the mixer and you know already piece of equipment let's just say you buy a thousand dollars piece of equipment then you know you depreciate it when you saw someone else, that person then gets in and you sell them for five hundred then you know they depreciate 5 hundred now [Sure] it probably should use higher amounts because there's your enemas rule of $2500 at least $10,000, 5,000 just got into those numbers. So it's a five thousand for you then the appreciation resets but that's actually that might be actually a good segue into some of the changes with bonus depreciation because under old law for bonus depreciation we can and I'm going to find them a second [OK] old law says bonus depreciation was not allowed for used equipment or used purchases of previously used items.
Now under new rules that law, that section is gone you can actually take bonus depreciation on new or used items, so that's a big change from something we've had in the past and I think where that came from is that the regional bonus depreciation dates way back to September 11th 2001 after the terrorist activity trying to stimulate the economy and that was a bleed out of really the original origin of the bonus depreciation rules that we even have today many years later, that it was time to stimulate the economy so they wanted folks to go out and buy a new items that were being manufactured and you know supporting jobs in fact that I feel like now the change, the changes occurred because well are counted so far removed from that and you know economy's doing a lot better and things is just more of a benefit to businesses so the connection to the stimulation of the current economy is not as tight and so they removed that restriction from the new bonus depreciation rules.
But basically, bonus both appreciation in a nutshell allows you to immediately expense either some or all of equipment purchases that normally would be depreciated over time over several years and so in the past, that was there's been different percentages for different years at one point it was 100% and then went down to 50% and over the last few years, the rules have changed to where it was fading out and bonus depreciation was actually scheduled to be phased out by the year 2020.
So, really only has a few more years and the percentage of rate that you take with only 15% OK so that was the existing rule going into last year 2017 or as of the end of June 17. So, now with the new law, the changes are first of all you can take 100% of these items anything that's eligible and we'll talk about that in a second, we take 100% and the 100% rate is good through 2022 you have got a couple extra years and then from the years 2023-2028, they'll be a phase down and it will go I think from a 50 to get 20% a year for a couple years there but it will face down over time so as of right now bonus depreciation back for a few years at 100% and then phase down over 5years to where it will go away again and would have to wait and see if it'll be renewed.
But another change is like I mentioned before you can now take either new or used property so you don't have to be purchasing anything new to take this bonus depreciation and in addition to personal property which you know like the machine equipment and things like that, you could also take pretty much there's several types of Real Estate that you can actually take bonus depreciation on including most interior improvements so that really I think will be very helpful for any type of a restaurant that either owns its own space or is leasing you know for instance, we've got you know several clients that has leased space and we've got some that don't have to but the ones that lease, I mean they you can put as you know a million dollars or more into an outfit of the space to get it ready to run a restaurant in it.
So, [absolutely] that's quite a bit of cash to be spending or in some cases you know you're borrowing money to finance it. Invariably, we should try putting some of your own cash into this and so being able to take appreciation on that is, I think a big boon to a lot of folks to be able to quickly take as expense of the consumer incomes can be a really, really big help.
So, be able to take that and then when you talking about other types of allowable expenses basically you've got a property that is in existing. This is a case of basically anything that's brand new; if you're building a new building or you're going into a brand new space, these types of things are not eligible. But anything that's like an existing building that you're going into an outfit in that that has the potential take bonus depreciation on it right and so that that's where we're going to see most of the benefits.
But the one thing I want to mention is OK so for real estate; for restaurant property, the old law said, “Anything, any type of property that specifically being used as a restaurant property was depreciable over 15years, that's a different rule.
That rules actually gone and so that has been eliminated and now what you have is just any type of general improvement being done to a space. So, I don't know if that really is helpful to restaurant company but it allows you to be able to say for instance maybe you're using your space partly for a restaurant, partly for something else, maybe offices or maybe retail or some other type of use. It kind of the stand out what can be taken under the depreciation rules.
ROGER: Is that a minimum and I think that there is a maximum of $510,000 in cost to the value and some of these renovations or equipment but is there a minimum?
TONY: Well, that's a different rule, actually we could talk about that too that's Section (179). So these are two different things and [I am so confused] that's for that you know if that's OK I think in a lot of cases it's there or there's some confusion between the two.
Bonus appreciation I think that intimate we go into the differences in that. [Please do Tony] Those appreciations is allowed for pretty much any company out there, even your largest company can take that so it doesn't matter how big you are, you've got the ability to take bonus depreciation.
Now, Section (179) is a different animal because what it is. It's not allowed unless you have less than $2million worth of property placed in the service for the whole year. So, that's going to limit this section (179) now is generally limited to your smaller companies. $2million may sound like a lot of property but again, if you're doing renovations or if you're equipping a kitchen, equipping a dining room and that can get used up pretty quickly.
So, Section (179) is very similar to bonus depreciation but it does have those limits on it and so the changes for section (179) are like this and under prior law, if you put more than Two million thirty thousand dollars of equipment in the service into one year, then you are no longer eligible for section (179) But if you if you are eligible for section (179) the maximum you can take is $510,000 that answer your original question no there's no minimum on this it doesn't matter how about what the smallest amount is but there's only maximum.
So that's the old rule, the new rule is that you can put in a service up to $2.5m and you can expense immediately up to one million dollars.
ROGER: OK so these are two different things and I think one is that if you know some of this is kind of confusing probably talking you know without maybe seeing it on a chart or you know visually. But I think that's one of the reasons it is important to have someone like me or an accountant that can sort of this out because you have to make a choice and you kind of have to look to see which one of the works better for you and in some cases, you might look at it and say well, we clearly don't qualify for Section (179).
So in that case, I'm just going to take a bonus and because that's all or are qualified for but if you do qualify for Section (179) that might be the better option and one reason potentially that might be a better option is because in most states, they don't require you to adjust out the section (179) they allowed Section (179) but they do not allow the bonus.
So, for instance in my state of South Carolina if I were to take two identical assets you know let's say there's $50,000 each, the first asset I take bonus depreciation on it the few thousand deduction what I do my state of South Carolina tax return I have to remove that hundred fifty thousand option and do just normal depreciation on it so it might be say 10-15 thousand dollars I could get in the first year with a 5year property.
But there's that same asset $50,000 with section (179) and choose to elect to take a section (179) deduction them direction it's fifty thousand or deduction and that same adduction applied for estates up there are so I don't have to adjust it; so that's one big advantage to section (179) over bonus if you qualify for it.
Also, something I was alluding to earlier with the improvement property with section (179) they have the new tax law allows you to take certain components of a building like actual structural components so groups HCAC, fire protection equipment, alarm and security systems and things like that that normally would be included in the structural components of the building and would not be eligible so that's actually a brand new thing that we're seeing on that under the new law that is allowed with Section (179)
ROGER: That's great!
TONY: So, I feel like it's a lot of information and you can kind of get it really kind of dizzying to think which one should I do and how should I handle it? But the best advice I can give is to sit down with someone who has experience with this and can run your tax returns both ways.
We can take what does it look like with ? What does it look like with (179)? And is there some combination of the two that we can take, do you even qualify for Section (179)? How's it going to affect your state tax or terms that you can have to do? And look at all those factors and decide which one of the best for you.
So, you know with all the changes of a lot of opportunity available but there's also some pitfalls and you could get in situation where maybe you can kick yourself later say, “Oh! I could have done it better this way” So planning is very important with depreciation nowadays.
ROGER: I'm really glad you brought that up because that's a great point about you know sitting down with your Professional and just going over these things item by item. But I also want to let the audience know that Tony wrote a recent article and it's called ‘5 things that every hospitality business owner should consider in the tax reform Law’.
And it's really easy to understand and it's very comprehensive, I mean I'm going to include a link to this article for the listeners out there Tony within the show notes. So, you know it's easy to listen as you're driving along but there are a lot of key details that you going over that you know probably want to be you know revisited and I think the article's a good place to start before they sit down with a Professional so they can ask the right questions.
TONY: Right and that article just gives a nice brief outline of what I'll just talk about because again, as a restaurant owner, you don't want to get bogged down in the details of you know what qualifies and what doesn't. But I think it's worth a conversation let's say you're opening a new location; go talk to your CPA and say if we do it this way what are the implications? Do you recommend doing it differently or is there something different I can do that can lead me to a better result from a tax stand point.
And have that conversation before you ever do the renovations or do the outfit or purchase the equipment. Once it's done, you might be limited in how you can depreciate things and what your result might be for tax purposes.
ROGER: You know there are some other big changes from the Trump administration for 2018 you know we can talk about pass through entity income; do you want to cover that now?
TONY: Yeah sure, that's a big change because that's one of the few changes that exist in this new tax law that is brand new and didn't exist in the past so it's not just a modification or update of something; it's something that's brand new. So, as we talked about earlier at the beginning of the show, corporations partnerships and all included in this discussion sole proprietorships, these are basically what we call ‘Pass through type entities’ what that means is the company itself, the entity, the LLC, the corporation a partnership whatever it is does not pay tax.
The taxable income is calculated by the company and then that income passes through it flows to the owner. And the owner then pays the income tax on his or her tax return invariably. OK So for those types of entities, as corporations, partnerships and sole proprietorships, there's a brand new deduction called ‘The Tax deduction’ and it's a 20% deduction and it's very simple.
You take your taxable income from that company 20% and you take it as a deduction. There's really not much to it. Now, that being said, with like any good tax provision, there are restrictions on who can take it, all right.
So, here's the first restriction is the type of business that you're running and what we call the specified service businesses are not allowed to take this deduction. Now, I don't think this is going to impact too many restaurants or hotels or manufacturing companies or retail stores, folks who are dealing with physical products or you know making things or selling things, you know tangible things; for the most part it's not going to affect those types of companies.
Who it’s going to affect its folks like me Accounts, Lawyers, Doctors, consultants, Investment Advisors we’re the type of folks they're probably going to be excluded from this deduction, unfortunately. But that being said, I bring it up because I've run into some situations in the past where you've got someone who maybe may take you for example you've owned a restaurant the past but now what you do is consulting.
So, maybe you're doing that at the same time maybe you've got an operating business that's a restaurant or a hotel whatever it is and then you're also doing consulting for other companies as a side business or just as a part of your mainstream business or your main business. You've got to look at that and break those down to see which one qualifies for this new deduction and confirm you know if you do or do not qualify.
Now, if that's the case, being a Consultant on the side doesn't disqualify you from the deduction that you can break it up and you know it can be done if you can be applied to the portion of your business that does qualify. So, that that's one thing, the second restriction is you have to have W2 wages in your business or tangible property that's used by your business.
So, what that means is like we were just talking about equipment, Real Estate, things that you're using, tangible property that is being purchased to use in your business. I would say for the most part, most restaurants have that because you're going to cook the food or serve the food or where your  that are going to sit if you don't have some type of equipment that's being used in your restaurant. So, that generally won't be a problem; also W2 wages you know very few restaurants or companies that can’t survive without employees so to put it very small and possible.
But in general, I bring those two items up because again it is part of the rules but I don't think it's going to disqualify too many restaurant companies out there because most of them will have those attributes to them. Now, all that being said, those two restrictions, the type of business and whether or not you have employees and equipment in your business, those only apply if your overall taxable income is over $315,000 if you're married or $157,500 if you're single.
So, that's another thing you have to look at if you're under those income threshold, you don't even have to worry about the restrictions we just talked about, the services, business service businesses or the wages and property. But if you are over those amounts and you do have to look at those who actually there's two restrictions and kind of run your income your business through those filters to see if you do qualify.
But so if you do qualify, it's really a great--- it should be a great nice deduction for folks; the only problem I can see right now is I feel like there's going to be some either litigation or confusion or probably some arguments about what does and doesn't qualify and how things are written, there's probably going to need to be some clarification and regulations and things like that because we've never had this before, it’s brand new. And you know the interpretations of this law run the gamut from you know someone might say well just about everybody is going to qualify versus some they might on the other end of the special might say well there's very few companies that are going to qualify so I've seen commentators have said you know stream.
So, I think what we're going to do is be careful about this and take it one step at a time and again, talking to your CPA, your professional up front like we talked about maybe over the summer when things aren't crazy; take some time, set up an appointment with your CPA sit down and say, “Do you think I'm going to qualify for this deduction? Let's go through the rules one by one and see if I'm going to qualify”
And then, you can have some confidence going into the next year when you're doing your 2018 tax returns when this begins to apply that you can you can either take it or not it.
ROGER: Well, that's a great benefit and I do think a good majority of our listeners are going to qualify for that one so I'm really glad we got a chance to talk about it. Let's talk about these new limits on deducting losses in your hospitality business as well Tony do you want to take us there?
TONY: Yeah, we can talk a little bit about that basically what what's going on there is I guess maybe just talk initially about what it means to deduct losses. And again, this is something I think that we're going to have to see how it all flushes out going forward but essentially in the past, if you have a loss, a current year loss in your business, then you are essentially able to of course apply that loss against other income you might have.
So, let's say you're married and maybe your spouse has a 9-5 job and just you're going to drive you to make an income and maybe you're running your business and either you're in a startup mode or you're in a transition or you have a bad year or something happens and you end up having a loss on your business. Well, you could take that loss and an applied against your personal income and essentially reduce maybe you can either stock of income or other investment income things like that and reduce your taxable income. So, that's been the rule all along, that rule hasn't really changed just now that there's limits on how much you can actually take and you're not actually allowed to completely wipe out your other income based on taking losses from a business.
And also in the past, something you could do is you could actually take that loss and you can carry it back a couple of years so generally, the general rule is there are some exceptions but the general is 2years and so, what you could do is you could take a loss in 2017, if you carry back to 2015 and you can kind of rerun your tax return in 2015 with that loss and say, “Hey, I would have ended up with a lot less tax if I had that loss in 2015” and IRS at that and basically allows you to get a refund potentially of the tax year.
Unfortunately though, that is no longer the case so we're no longer going to be able to take losses back 2years, you're only going to be able to take losses forward. So, that's unfortunately one of the big changes that occurred and I think what we're going to see is it's going to let you know you again, you think about the lifecycle of a restaurant company or any type of company really any type of company that's just getting started in typical you are going to have probably some type of losses you know maybe in your first year, 2years something like that.
So, I think that's a little bit unfortunate that those options are no longer available but we'll see if it may just cause folks to do a little bit better planning and moving forward so they are prepared to be able to take those losses forward rather than taking them backwards but I think you know it is going to be that is one benefit I think is no longer going to be available which is unfortunate.
ROGER: Yeah, I wanted to bring that up because you know a lot of companies that might be new into this business like you mentioned one or two years ago to show losses until they turn the corner so, you know I want to make sure that they're putting themselves in the best position moving forward.
TONY: And just one more thing to add on that there's actually a one restriction on those net operating losses that I just mentioned is that you can only as you move forward if you have a current year loss you can only offset up to 8% of the taxable income for the year.
So, again going back to the example of say you have steady team income and you're running your business with a loss if your stock is 100,000 of income you have 100,000 of loss you can't completely offset those, you can only take 80% of your loss to $80,000 against wages of yourself and you'll still have $20,000 of taxable income for the year but that additional $20,000 you could take this year you could carry it out over to the next year. So, you don't completely lose it it's just a matter of timing and when you get to take that one more restriction that is in place as long.
ROGER: Very good, all right is there anything else that we've missed either for 2018 or any last minute tips for 2017 that we still need to cover?
TONY: What I’ve been mentioning as a talk to restaurants and hospitality company owners recently is a new restriction on business entertainment deductions and I bring this up for two reasons first of all, it's something that if you're doing any entertaining in your business which you know we do occasionally in our business but it depends on the industry that you're no longer able to deduct that.
So, that's a kind of a step in the wrong direction I think that's one thing and entertainment deductions what we mean by that is not meals but things like tickets to sporting events or golfing or things like that there are not around food or meals, it's other types of entertainment.
So in the past, that was all you could take a 50% deduction on that now there's no deduction allowed to that so I think that's a potentially going to hurt you know the taxable position of a lot of companies from that side. But also, I feel like when you talk about restaurants and hospitality and leisure type companies in general, there could be as shit a big shift in the corporate budgets that are available to purchase those types of services and those types of entertainment.
You know things are going at auctions so that's something that could negatively hurt, negatively affect the revenue of the types of companies that you and I work with. So, I think it's something at least to be aware of that let's say for instance you're running a Country Club or some type of a venue that has sporting events or theater or other types of things as well as a restaurant maybe attached to it.
You could see some of your out of your revenue from the entertainment portion could be lower than usual in the coming year because maybe companies realize we can't deduct this like we could in the past not to say that companies won't do that anymore because there's some value obviously they're getting value from it now they would do it currently but maybe the value isn't as much if they're not able to deduct some portion of it.
So, I would have thrown that out there to a lot of folks just of be aware of and something to plan for and maybe what we'll see is some type of a shift in the way pricing occurs, in the way packages are presented to the to corporate clients or corporate customers where it's more of the dollars are going into the meal portion rather than the entertainment portion so kind to see how that works itself out.
ROGER: It's been a wealth of information as always; Tony you're easy to talk to and you explain these things really, really well even though some of these subjects can be complex and I'm really looking forward to sharing your contact information in the show notes also, if anyone out there is seeking a new accounting relationship or even at the last minute if you know if you need a new a change here, I'd certainly like you to look up Tony at Scott and company Columbia South Carolina.
It is a virtual world we do now communicate via e-mail and phone and Skype and you can upload any of your documents easily it doesn't necessarily have to be a face-to-face relationship so I really appreciate having you on the show anything last minute you want to share, Tony?
TONY: Well, I think yeah we've got a lot of Tunis here and that's the way I've been presenting this is trying to look at the positive and all the changes you see a lot of negative press about the tax changes and how things are going to affect businesses and individuals and you know we don't really talk about individual changes there's a lot of changes there but I think overall, for when you we talk about a business like a restaurant, that has a lot of money invested in it and people and equipment and things that are tangible, there's going to be a lot of opportunity to take deductions that either weren't there before or accelerate the deductions that were slower in the past and so you just have to look for him and kind of have your eyes open and be aware of what's going on.
Actually, one thing I didn’t mention before it was there was a recent the recent budget law that just passed to avoid the Government shut or the you know to stop the government shutdown they actually renewed for one more year something called ‘Empowerment Zone Credit’ which escape is a really used credit we actually have an empowerment zone here and call me talking on it but the point of that is that maybe not a lot of your listeners be able to take that that credit but you've got to be you've got a tension of what's going on because something as innocuous is as a budget deal just to avoid a government shutdown; there's tax provisions you know tucked away in there you've got to pay attention and kind of be aware of what's going on.
So, it pays to seek the counsel of a of a qualified Professional someone who is watching and looking at the news and reading and absorbing that material and helping to understand it so that you know it can be used to the best advantage to you as a business owner.
ROGER: To me, it can be so overwhelming I mean they give you a lot of credit because you're a true professional you do Tony but when all this new legislation gets passed I mean isn't it at tremendous amount even for a professional to keep up with you constantly being sent new articles and how is this information disseminated to you personally or to your firm generally when changes are made?
TONY: Well, I do rely a lot on articles that I read and think resources that have them to try to research certain responses and so the real quickly getting things written and I think in a lot of cases they had advance knowledge of what's going on and you know are basically prepared to write commentary on that.
So, we rely on them also where we're part of an alliance of accounting firms and we have a tremendous amount of resources through the alliance that we're part of and they're really good about putting out information as well. But yeah, I think in law cases it's just a matter of sitting down and digging into the articles, digging into the commentary and of course looking at pull ourselves what's going past and just talking about it I mean one thing that's been really helpful for me giving presentations and writing articles is that I really learned the material pretty well you know I'm not going to say I'm a complete expert on everything or every aspect of it but I think that that really pertain to my clients and the folks I work with, I’ve paid a lot of attention to them and study them and I think I've got a pretty good handle on it and you know if there's questions I've got all these resources I can go to.
So yeah, it is it is a little bit overwhelming at times but I feel like that you can't ever rely on your own your own memory, you just need to have resources available and that you can you can fall back on to confirm and you can say, “Well, you know I don't know everything about this so let me make sure and do that do the homework and make sure it's correct the way we're doing it” And to have a comprehensive system that kind of takes into account all the different factors so that's kind of how we handle it.
ROGER: I know we can't do it ourselves, we're too busy running a restaurant so it certainly helps to have a Pro in our corner especially at this critical time, well thank you so much Tony for being a guest again I'm going to include a link to your article because I think it really clearly and efficiently explains a lot of the things we talked about today it's a really good first step before someone sits down with their CPA.
And I definitely wouldn't discourage anyone from considering the option of taking an extension on their return especially if you're scrambling at the last minute and you want to make sure that you give yourself every advantage. So, that was the Restaurant Rockstars Podcast and we'll see you next time thanks for being my guest Tony, it's always a pleasure.
TONY: I’m glad to be here.
Thanks for listening to The Restaurant's Rockstars Podcast. For lots of great resources, head over to restaurantrockstars.com and while you're there, download a copy of the book, ‘Rock Your Restaurant’ it’s a game changer, See you next time!
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