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Navigating Tax Strategies in the Hospitality Industry | SVA

Navigating Tax Strategies in the Hospitality Industry

The hospitality industry faces unique challenges when it comes to tax planning. With changing regulations and economic shifts, it’s important to stay informed and adaptable.

Changing Bonus Depreciation Percentages

A major change all businesses are facing for 2023 and beyond is the adjustment in bonus depreciation rates. From 100% in 2022, these rates are set to decrease by 20% annually. Lowering bonus depreciation rates means that businesses are not getting as good a tax break in the year of making these needed purchases.

While there is legislation in the works to revert bonus depreciation rates back to 100%, it is not a done deal. If this legislation is not passed, businesses will need to consider what they can hold back on purchasing.

Adapting to these depreciation changes requires a strategic approach. Businesses must balance immediate asset acquisition with long-term tax implications. It is important to work with a trusted advisor to align asset management with tax benefits.

Timing Capital Improvements and Construction Wisely

The timing of capital improvements has become a crucial consideration. Balancing immediate operational needs against future tax advantages is key.

This involves a careful assessment of when to undertake significant improvements, factoring in current asset availability and possession requirements. High interest rates and construction costs are also important considerations. In some cases, it may make sense to wait on any capital improvement projects that are not vital to the business.

High interest rates are not the only challenge business owners need to navigate – soaring construction costs are also a major concern. To deal with these challenges, some businesses are adapting their construction and renovation plans, while others are scaling back or reimagining projects to fit within new financial constraints.

Capital improvements and construction projects are a balancing act between making needed updates to take your business to the next level and being smart about financing such projects.

Cash Flow Management in a Fluctuating Economy

Effective cash flow management is more important than ever, affecting financing and operational expenses. Hospitality businesses must judiciously manage funds for taxes, improvements, and debt servicing.

For hospitality businesses that are seasonal, the off-season can be a time of cash-loss. If possible, work with your bank on a payment plan that allows you to make larger payments during the busy season when cash flow is less of an issue.

Increasing operational expenses are impacting net income, forcing business owners to adjust their tax strategies to align with their current financial reality.

The Importance of Year-Round Tax Planning

Year-round tax planning is not just a recommendation; it's a necessity for success in the hospitality industry.

Any tax planning strategies must take into account the seasonality of the industry and should include managing cash reserves to sustain operations during off-peak seasons and careful collaboration with financial institutions.

Stay Informed

The hospitality industry requires a proactive and flexible approach to tax planning. Staying informed and consulting with tax professionals for tailored advice is key to navigating the complex landscape of taxes in this dynamic sector.

Contact SVA and let us help you plan your tax strategy for the next year and beyond.

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Biz Tip Topic Expert: Nicole Gralapp, CPA, CExP™

Nicole Gralapp, CPA, CExP™

Nicole is a Principal at SVA Certified Public Accountants working primarily with closely-held businesses and individual clients. Nicole performs a variety of tax, assurance and business consulting functions. She provides clients with technical expertise in areas such as tax planning, financial reporting, financial projections, budgeting, financial and estate planning and review of internal controls. Her experience in the hospitality, restaurant, construction and professional services industries gives her the ability to consult with clients in a variety of areas.

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