Spas May Benefit from Government's New 20 Percent Tax Break

Will the new tax reform benefit spas? Experts say yes. // Photo credit: Milaspage/iStock/Getty Images Plus

It appears that spa owners are among the lucky businesses owners who will benefit from the upcoming tax breaks. Earlier this week, the Treasury Department issued regulations outlining the types of companies and professionals eligible to qualify as “pass-through” entities and benefit from the 20 percent tax deduction President Donald Trump included in last year’s $1.5 trillion tax overhaul. 

The term pass-through includes sole proprietorships, partnerships, LLCs, and S corporations in regard to federal income tax purposes. This means these entities are not subject to income tax, but rather the owners are directly taxed individually on their own income, taking into account their share of profits and losses. According to The New York Times, pass-throughs account for more than half of the businesses in America.

The new law allows any business owner earning less than $156,500, or $315,000 for couples filing jointly, to take advantage of the deduction. It does, however, exclude some companies whose owners can earn more than that from taking the deduction because they are a certain type of service business, like a doctor’s or lawyer’s office. It limits the deduction for other businesses based on how much they spend employing workers. 


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While the regulations answer many questions business owners have, the verbiage of the document leave much to interpretation. For example, owners of dental offices may not claim the deduction, it says, but owners of health spas may, because they do not directly provide medical services. There is no specification in the document regarding medical spas. 

For estheticians, however, it’s important to note the guidance attempts to make it difficult for workers who previously were treated as employees by a company to reclassify themselves as independent contractors in order to secure the 20 percent deduction. It presumes that any workers who make that switch will continue to be treated as ineligible for the deduction, unless the workers can show that they are now “performing services in a capacity other than as an employee.”

According to the Pittsburgh Post-Gazette, Dorothy Andreas, owner of Sewickley Spa (Sewickley, PA), feels the tax break will provide a much needed boost to her location and her employee’s morale, who have not received an annual raise in 13 years. “I just want to put it all back into my company,” Andreas told the Gazette. “It feels like the government wants to see small business succeed and it’s like a breath of fresh air into a very stale climate.”


Do you plan on seeing if your spa will benefit from the reform? Let us know your thoughts on the new regulations. Connect with American Spa on Facebook, Twitter, LinkedIn, and Instagram.


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