Hotel business gets tax benefits if :
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Are you aware of tax deductions and credits your hospitality business may be eligible for? Many hospitality owners tend to focus on the day-to-day operations and dealing with compliance regulations. Tax related matters tend to be postponed until after the end of the year. Now is the time to plan ahead for tax deductions to maximize the tax savings in the future. Smith Schafer has provided a list of possible deductions and credits to help our hospitality clients, prospects and others be aware of possible tax savings in the hospitality industry.
1. TIP CREDIT
Hospitality businesses may be able to claim a credit for social security and Medicare taxes paid or incurred by an employer on certain employees’ tips. This credit is part of the general business credit.
You may claim this credit if you meet both of the following conditions:
You had employees who received tips from customers for providing, delivering, or serving food or beverages for consumption if tipping of employees for delivering or serving food or beverages is customary.
During the tax year, you paid or incurred employer social security and Medicare taxes on those tips.
Generally, the credit equals the amount of employer social security and Medicare taxes (7.65%) paid or incurred by the employer on tips received by the employee.
2. WORK OPPORTUNITY TAX CREDIT (WOTC)
The Work Opportunity Tax Credit is a Federal tax credit available to employers for hiring individuals from certain target groups who have historically faced barriers to employment and discrimination in the workplace. You may be able to claim this credit on first- and/or second-year wages you paid to or incurred for these employees during the tax year.
You must ask for and be issued a certification for each employee from the state workforce agency (SWA) of the state in which your hospitality business is located. The certification proves the employee is a member of a targeted group. You must either:
Receive the certification by the day the individual begins work; or
Complete IRS Form 8850, Pre-Screening Notice and Certification Request for the WOTC, on or before the day you offer the individual a job and receive the certification before you claim the credit.
The new hire must fall into one of the following target groups listed below:
Qualified IV-A Recipient
Qualified Veteran
Ex-Felon
Designated Community Resident
Vocational Rehabilitation Referral
Summer Youth Employee
Supplemental Nutrition Assistance Program Recipient
Supplemental Security Income Recipient
Long-Term Family Assistance Recipient
Qualified Long-Term Unemployment Recipient
3. THE RESEARCH & DEVELOPMENT (R&D) TAX CREDIT
The R&D Tax Credit is an incentive for hospitality businesses to invest in research and development activities to increase growth and competitiveness. Businesses may be able to take credit up to 13% of eligible spending for new and improved products and processes.
Qualified research must meet the following four criteria:
New or improved products, processes, or software
Technological in nature
Elimination of uncertainty
Process of experimentation
Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent.
4. 199A TAX DEDUCTION
The Tax Cuts and Jobs Act (TCJA) created a new deduction for pass-through business owners. This deduction, in certain situations, may provide up to 20% tax deduction on qualified business income for eligible partnerships, S corporations and sole proprietorships. For taxpayers with taxable income exceeding $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers, the deduction is subject to limitations.
These limitations include:
Whether the business is classified as a service trade or business.
Taxpayer’s taxable income.
The amount of W-2 Wages of th
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