Looking Forward: Tax Planning in the Wake of Tax Reform
The Tax Cuts and Jobs Act (TCJA) is the largest piece of tax reform legislation in the last three decades. While its full impact is yet to be felt in a number of areas, what’s obvious is that this overhaul of the U.S. tax code will have a far-reaching effect. There are a number of provisions included in the TCJA that have a direct impact on the hospitality industry.
Full Property Depreciation
The TCJA includes two methods for 100% depreciation of property:
- Firstly, the legislation includes an expansion of bonus depreciation provisions. Bonus depreciation is now set at 100% for tangible property purchased and placed in service from September 27, 2017 through December 31, 2023 (it is then phased down through 2027).
- The TCJA also includes a permanent expansion of the Section 179 expensing deduction. Businesses can now deduct up to $1 million for eligible property (there is a $2.5 million phase-out threshold).
Changes to Real Property Depreciation
Also included in the TCJA is an expansion of the definition of “eligible property” to include both tangible property used to furnish lodgings and a variety of improvements to nonresidential real property, such as:
- HVAC equipment,
- Fire protection,
- Alarm systems, and
- Security systems.
Tightening and Elimination of Deductions
Not everything in the TCJA is of benefit to the hospitality industry. The tax reform legislation includes the elimination of the deduction for business-related entertainment expenses. On top of that, the TCJA halved the deduction for business meal expenses from 100% to 50% and added a 50% disallowance rule that applies to meals provided by an employer on premise (after 2025 the expense of on premise meals will no longer be deductible for employers).
The TCJA also eliminates the employer deduction for the cost of providing transportation to an employee (with the exception of transportation that is necessary for the employee’s safety) and the cost of various other transportation fringe benefits.
Impact on Tax Planning
Overall, the TCJA offers taxpayers in the hospitality industry some exciting tax planning opportunities. In addition to the above provisions, which are more specific to this particular industry, the tax reform bill includes a flat corporate tax rate of 21% and a new pass-through deduction for s-corps. Be sure to contact your Scott & Company tax advisor to help with your tax planning decisions.