Tax cuts: Five areas for franchises to watch

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.