Are you considering updating part of your restaurant or retail
space and not sure of the tax implications? Well, there is a new
tax election out there, however, its requirements can be rather
daunting.
The IRS developed a new Safe Harbor election for a select few
restaurateurs and retailers. This accounting method allows for
these restaurateurs and retailers to deduct 75% of the expenses
incurred while only capitalizing and depreciating the remaining
25%.
First, a little background: Depending on the depreciation rules
in effect at the time, a capital improvement to a restaurant or
retail space would be depreciated over 15 or 39 years. Equipment,
on the other hand, can qualify for immediate expensing or is
depreciated over five years. The depreciation rules can cause a
mismatch in the timing of when cash is spent on an improvement
versus when you receive the tax deduction.
