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SVA's 2021 Tax Year Review: Hospitality Industry

SVA's 2021 Tax Year Review: Hospitality Industry

The 2021 tax season filing deadline has come and gone. While it’s always good to look to the future, remember to take time to reflect on the past.

That is what this Biz Tip is about. SVA’s professionals spend countless hours helping clients with their tax needs and so much more. Below you will learn about some of the problems their clients experienced in 2021, questions they had for our experts, and 2022 recommendations from SVA’s hospitality professionals.

Was there a common tax-related problem or issue found with hospitality clients in the 2021 tax season?

With COVID restrictions relaxing throughout 2021, many hospitality clients experienced a more solid year financially in 2021 compared to 2020. Many clients faced tax bills while also addressing the need to buy equipment and make prolonged business purchases due to the lack of available cash in 2020.

Tax planning was a key driver in helping make big decisions on the timing and extent of capital expenditures while minimizing taxes and being mindful of cash flow.

Were there common questions asked by hospitality clients regarding their 2021 tax return?

The hospitality industry has been unsteady and unpredictable for several years. COVID not only caused many restaurants to close their doors permanently but also had hospitality businesses pivoting to adapt to the “new normal”.

Restaurants that didn’t have take-out options or have a website for customers to order curbside pickup soon had to incorporate these changes into their business model in order to meet the new demand. Hotels and resorts needed to adapt quickly to modify their check-in and housekeeping services to make sure guests felt comfortable.

The biggest questions received were related to what they should expect for 2022, so business owners can plan accordingly. Some business owners may be in a position where they have excess cash (partly due to deferring debt payments) so they need to decide what is the best use of that cash:

  • Should they pay down debt?
  • Use the extra cash to make capital improvements they delayed due to COVID?
  • Replenish their reserve funds they had to use to survive the last 2 years?

Business owners need to weigh their options and use excess cash in ways that will help their business now and moving forward.

Looking ahead to 2022, what tax recommendations does SVA have for hospitality companies?

The common questions asked from hospitality owners were what they should expect in 2022. Since no one knows what 2022 will be like, the best option is to plan, plan, plan.

Tax planning one time per year may not be enough. 2021 was a great year for many and 2022 looks to be strong but there is still some unpredictability in where the year may go with workforce shortages, inflation, and rising costs. The hospitality industry relies on individuals having discretionary spending and that is reduced due to inflation and rising costs.

In 2022, the focus needs to be on margins and making sure you are raising prices at the appropriate time and in sync with raising wages and costs of goods sold. Restaurant owners will need to keep an eye on their menu pricing to ensure they are maintaining profitable margins. The same holds true for hotels and resorts. Key metrics are important to make sure you aren’t missing revenue in your pricing while also maintaining steady occupancy rates.

There are many business owners considering purchasing or selling a business. There is a lot of consideration surrounding the timing of these transactions, along with other aspects. Make sure to do your due diligence when looking to sell your business or purchase another so you can make the best decisions for your company.

(Download Video Transcript)

There have been many questions surrounding tax rates:

  • Will they go up?
  • What impact will it have if the tax rates do go up?
  • What about capital gains rates - should I sell now?

The best answer here is to not only work closely with your tax advisor but make sure you are keeping up on the latest tax news as well. SVA’s Tax eAlerts are a great way to stay up to date on tax changes. Click on the button below to subscribe.

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Prepare for 2022

The best way to prepare for 2022 is through continuous planning. Don’t wait until it’s too late to react to changes that can affect your business. Be proactive in readying your business for upcoming changes in the hospitality industry.

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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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