The Tax Cuts and Jobs Act signed into law by President Donald Trump in 2017 provided across the board income tax relief for households and businesses of all sizes.
The Trump tax cuts are vital to franchisees. McDonald’s noted the tax cuts helped them expand the employee tuition benefit program, a fact reported by the Associated Press, Axios, Detroit Free Press, The Plain Dealer, and Nation’s Restaurant News. (Americans for Tax Reform tracks TCJA good news at ATR.org/list)
But Kamala Harris has vowed repeatedly to repeal the TCJA and raise the U.S. federal corporate income tax rate to 28%, higher than China’s 25%.
In a column for National Review, tax expert Ryan Ellis outlines TCJA’s major tax relief provisions key to franchisees:
As small businesses, these franchise restaurants overwhelmingly are organized as single or multimember LLCs, being taxed as sole proprietorships, partnerships, and S-corporations. These family-owned businesses pay taxes using personal tax rates, not corporate tax rates. As a result, they benefited immensely from the Tax Cuts and Jobs Act.
First, and most directly, their tax rates went down — way down. Before TCJA, a successful McDonald’s business owner faced a top marginal income-tax rate of 39.6 percent. TCJA cut this rate to 37 percent and also created an exclusion from tax for small-business income known as the “qualified business income” tax cut. When combined, the top income-tax rate on a successful McDonald’s business owner declined from 39.6 percent to 29.6 percent — a full ten points, or a top-rate cut of a quarter (not to be confused with a Quarter Pounder).
The second major TCJA tax cut was full first-year expensing of most franchise costs, rather than having to slowly deduct these costs over time using complex depreciation and amortization tables. The cost of franchise equipment like ice-cream and french-fry machines, tables, and cash registers could be written off in full. The cost of refreshing the look of a McDonald’s (an expensive endeavor done every decade or so) was now “qualifying improvement property” and could also be written off. Franchise owners making $25 million or less per year (indexed to inflation) were allowed to deduct inventory and otherwise use the much simpler cash method of accounting (your checkbook ledger is your profit-and-loss statement).
Ellis, president of the Center for a Free Economy, also wrote:
The third and final major area of tax help for McDonald’s franchise owners is a big TCJA cut in the death tax. While the death-tax rate remained the same at 40 percent, the death-tax “standard deduction” doubled and was indexed to inflation (it’s $14 million in 2024). Furthermore, spouses were allowed to inherit an unlimited amount tax free and use both their and their late spouse’s death-tax standard deduction upon their own death (so for most married McDonald’s franchise owners, the death-tax exemption is effectively $28 million in 2024).
Because of Senate budget rules, all of these provisions are set to expire at the end of 2025. The top tax rate for McDonald’s franchise owners will jump from 29.6 percent to 39.6 percent overnight. Franchise equipment and restaurant improvements will again be subject to lengthy depreciation. Thousands of franchise owners will no longer be able to use simple checkbook accounting or inventory expensing. The death-tax “standard deduction” will be cut in half, and the ability of spouses to double it will be lost. Trump and congressional Republicans are running on making all these TCJA tax cuts permanent.
Meanwhile, Kamala Harris has never retracted her repeated vows to repeal the Trump tax cuts.
Visit Kamalanomics.org for updates.
Visit ATR.org/list for tangible examples of TCJA good news.