Tax season is upon us! Although income taxes aren’t due until April 15, the cut off for deductions is December 31. Everyone loves finding an opportunity to benefit from their taxes rather than owing more money, so why not consider making a change in your life and career that could offer the advantage of a lower tax bill? Investing in a franchise can make that possible!
Write-Offs for New Businesses
For starters, there are certain write-offs available for first-year start-ups. These can include legal and accounting fees, the cost of researching what it takes to start a successful business (market research, products, and more), employee training, and expenses related to retaining the financial backing for your investment, among others. In addition, the IRS has what it refers to as a Section 197 intangibles. When you invest in a franchise, the initial fee can fall underneath this provision as a start-up cost and can be amortized, or paid off, over the course of 15 years. This exists regardless of the length of your contract.
However, there are exceptions to this rule in which some people may not be eligible to spread out payment for Section 197 intangibles. If your transaction doesn’t result in “a significant change of ownership or use” you may not be eligible for amortization. Be sure to consult with your tax professional to see what deductions you would be eligible for.
Tax Reform Benefits
The Tax Cuts and Jobs Act (TCJA) that went into effect in late 2017 focused on the reduction of corporate tax rates to a flat rate of 21%, and also created the opportunity for deductions for “pass-through business entities (such as sole proprietorships, partnerships and S-corporations and LLCs).” According to Geoff Seiber of FranFund, the TCJA “allows pass-throughs to deduct up to 20% of income” with the exception of businesses that are service-based in which the deduction is only available to married couples filing jointly with a maximum income of $315,000, or $157,500 if it is a single taxpayer. This deduction is available as an individual income tax provision through the end of 2025.
While there are limits on deductions based on income level, Franchise Marketing Systems reports that it makes starting a business a much more attractive option. In addition, the organization says “This tax reform will create yet more incentives to invest in a franchise and open a business.” Because of this tax reform, investing in a franchise should not only become easier but also make it a more profitable investment in the long run.
Now is the time to consider what you can do to reduce your tax bill while making a positive change in your career and for your future. If you’ve been thinking about investing in a franchise, file this under the Pros on your Pros & Cons list.
Interested in franchising but worried about the cost? Check out our franchise affordability calculator to help you determine what you can afford.