Running a restaurant is challenging. Typical profit margins range from only 3% to 5%, making restaurants highly sensitive to tax policies. They rely on a pro-growth tax code to encourage hiring, innovation, and investments in their communities.
What Restaurants Need:
The Main Street Tax Certainty Act
Most local restaurants are partnerships, LLCs, or sole proprietorships that use the 199A qualified business income (QBI) deduction to preserve their earnings as working capital for new hiring, employee benefits, refurbishments, and growth. For an average restaurant operator, the QBI deduction reduces their top effective tax rate from 37% to 29.6%. The Main Street Tax Certainty Act makes the QBI deduction permanent. Without this legislation, this deduction expires at the end of 2025.
Accelerate Long-term Investment Growth Now (ALIGN) Act (H.R. 574/S. 187)
Modernization and maintenance of the necessary equipment are large investments for restaurant operators. Full expensing of these expenses allows restaurant operators to immediately take a tax deduction, instead of spreading that deduction over multiple years. This keeps more cash on hand for other essential costs like rent and payroll. The ALIGN Act encourages investments by making many of them fully deductible in the current tax year.
American Investment in Manufacturing and Main Street (AIMM) Act (H.R. 1347/S. 559)
The deductibility of business interest expenses tightened significantly in 2022, restricting interest expense deductions to 30% of earnings before interest and tax (EBIT). This led to an unexpected increase in taxes for many small and medium-sized restaurant groups. The AIMM Act restores depreciation and amortization in the calculation of business interest expense, providing businesses with more flexibility to fuel growth and operations.
Additional Supportive Tax Policies:
Work Opportunity Tax Credit (WOTC): WOTC helps restaurants hire, train, and support workers who face employment challenges. WOTC should be extended and made permanent to support workforce growth.
Paid Family and Medical Leave Tax Credit: The tax credit for restaurant operators offering family and medical leave ensures more workers can access paid leave through their employers. The credit for offering paid leave should be enhanced and made permanent.
Estate Tax Repeal: High inheritance taxes force many family-owned restaurants to sell or close following the passing of an owner. Changes in the tax code could help families preserve ownership of a multigenerational restaurant rather than close the doors.