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Tax cuts: Five areas for franchises to watch

January 15, 2019 Article 3 minutes read
Authors:
Dean Feenstra
Has your franchise planned effectively for the impact of recent tax reform? From the qualified business income deduction to opportunity zone incentives, review these five provisions to ensure you understand how key changes will affect your business.

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The recent tax reform legislation modified many provisions in the Internal Revenue Code. Several changes should be of particular interest to franchisors and franchisees.

For example, the 20-percent deduction for “qualified business income” from pass-throughs will help owners of businesses structured as S corporations or partnerships. Limits may apply based on the type of business and the income, wages paid, and property held by the business.

The new law limited deductibility for expenses like business interest, meals, and entertainment. Aggregation rules may trigger the interest limitations for some franchise groups, even when an individual franchise might be exempt under the income threshold. Meal and entertainment limitations can have a double impact on some businesses. Not only will they lose the ability to deduct their own expenses, but they could also see a reduction in income as business customers cut back on spending that’s no longer deductible.

These are three of the five areas of tax reform that franchise businesses should be watching closely. The law is full of provisions that can help or hurt your bottom line, and a failure to understand its impact on your situation could be costly.

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