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Solving Restaurant Pain Points: How New Texas Laws Provide Relief

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The recent legal changes in Texas offer solutions to several long-standing pain points for restaurants, though some new challenges may arise. The new laws address issues like inconsistent regulations, high costs, and a competitive labor market.

Pain Point: Confusing and Costly Local Regulations

For years, restaurants have had to navigate a complex patchwork of permits and fees from over 200 different jurisdictions in Texas. This often led to duplicate permits and high costs, creating significant burdens, especially for small businesses.

  • How the new law helps: Senate Bill 1008 directly addresses this by capping local health department fees at state-level rates and eliminating duplicative requirements. A state food manager certificate is now valid statewide, which removes the need for extra local paperwork and fees. This change is expected to save restaurants money and reduce time spent on bureaucracy. It creates a more consistent and predictable regulatory environment.

Pain Point: High Business Costs

High operating expenses, including taxes on business property and inventory, have been a constant struggle for many restaurants. These taxes often penalize growth and add a time-consuming administrative burden.

  • How the new law helps: Proposition 9 aims to provide significant relief by raising the business personal property tax exemption from $2,500 to a massive $125,000. If voters approve it in November 2025, this change could free thousands of small businesses from an annual tax and reporting requirement. It would allow restaurants to invest in future growth, increase wages, and support local communities.

Pain Point: Sourcing and Supply Chain Hurdles

Sourcing ingredients and unique products has been a challenge, with strict regulations often limiting partnerships with smaller, local producers. The previous laws for cottage food producers were restrictive, capping annual sales and limiting the types of foods they could sell.

  • How the new law helps: Senate Bill 541 broadens the scope for cottage food producers. It raises their annual sales cap to $150,000 and allows them to sell to third-party businesses like restaurants. This creates new opportunities for restaurants to partner with local artisans and feature unique, locally-made items. The bill also now allows the sale of refrigerated baked goods and enables product sampling.

Pain Point: Anticipating Future Consumer Demands

Consumers are becoming more aware of what’s in their food and are demanding greater transparency. This creates a new challenge for restaurants to adapt to changing expectations and potential future regulations.

  • How the new law could worsen this: While Senate Bill 25, which pertains to food additives and labeling, does not take effect until 2027, it signals a trend that restaurants may need to address in the future. While the law’s warning label requirement is aimed at manufacturers, the growing public awareness of food additives could pressure restaurants to audit their recipes and menus to get ahead of the curve.

Pain Point: Workforce and Operational Flexibility

The restaurant industry continues to face staffing shortages and rising labor costs. Restaurants also have to deal with various local sound ordinances and delivery restrictions that can limit operational flexibility.

  • How the new law helps: The Texas Restaurant Association secured several reforms that support the workforce, including improved access to childcare. The new laws also grant operational flexibility by ensuring restaurants don’t have to pay for sound permits to play background music or accept deliveries at night.

Timeline of New Texas Laws and Initiatives Affecting Restaurants

Here is a timeline of the new laws, propositions, and other initiatives and when they take effect, according to the provided article.

InitiativeDescriptionEffective Date / Key Date
Senate Bill 1008Caps health department permit fees and makes state food manager certificates valid statewide.September 1, 2025.
Senate Bill 541The “Texas Food Freedom Act,” which raises the annual sales cap for cottage food producers and allows new sales methods.September 1, 2025.
Proposition 9A ballot measure to increase the business personal property tax exemption to $125,000.Voter approval in November 2025.
Proposition 9 ImpactThe increased tax exemption from Proposition 9 takes effect for tax years beginning on or after this date.January 1, 2026.
Federal Tax CreditsUpcoming federal tax credits for paid family leave and childcare.2026.
Senate Bill 25A law concerning additives and food labeling.2027.

If you want help starting, operating, expanding, or selling your restaurant or real estate investments, we are here to help. Contact us at info@mrarrachecpa.com.

About the Author: Michael R. Arrache, CPA

As a Certified Public Accountant (CPA), Enrolled Agent (EA), and licensed Realtor, I am a tax expert who works closely with small business owners and real estate investors. My firm, Arrache CPA, Inc. dba Mr. Smart Tax, provides a range of specialized financial and real estate services, including tax planning, business transactions, and real estate advisory. With over 15 years of experience, my mission is to help clients achieve their financial and business goals by providing strategic advice and tailored solutions. I write these articles to serve as a starting point to guide you through the business or real estate process, and I am committed to providing the strategic guidance you need to help preserve and grow your wealth.

Naming the New Year: 2025 “Screeching Hawk”

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A Tradition of Naming the New Year

Like many people, I enjoy a good tradition. Whether it’s a familiar tradition like a family vacation or nightly family dinners, one of our favorites is naming the new year.

The New Year Name is chosen before the year begins and reflects the important plans, challenges, and opportunities ahead. We typically use a simple format: action + animal. This has led to some memorable names over the years:

  • 2019 – Riding Tiger
  • 2020 – Running Bear
  • 2021 – Soaring Eagle
  • 2022 – Hanging Man
  • 2023 – Hungry Hummingbird
  • 2024 – Bucking Bull
  • 2025 – Screeching Hawk

The Value of a Name

In my experience, this tradition has been inspirational, accurate, and at times, even foreboding. For example, 2023’s “Hungry Hummingbird” was incredibly accurate for the volatile housing markets and the unexpected but awesome rebound of the stock markets. Hummingbirds are fiercely protective of their small territories and need to constantly feed to survive, much like entrepreneurs had to stay nimble and seize every opportunity in the market.

For us as entrepreneurs and business owners, it’s important to work in our business as well as work on our business. The New Year’s name helps us associate an idea that is larger than any one person, while at the same time allowing us to focus 100% on the work at hand.

Our name for 2024, “Bucking Bull,” was a year of energy, enthusiasm, and competition. Much like riding a bucking bull, smart businesses had to navigate an uncertain economy and avoid getting dragged into uncontrolled situations. It was more important than ever to stay enthusiastic and align your journey with your competitive advantages.

This brings us to our name for the coming year: 2025’s “Screeching Hawk.”

Embracing the “Screeching Hawk”

A hawk is a powerful predator known for its patience and keen eyesight. It soars above the landscape, surveying its surroundings with a clarity and perspective that few others possess. Its screech is a sharp, confident sound—a declaration of its presence and a warning to others.

The “Screeching Hawk” will be a year of strategic planning and decisive action. We anticipate a year where a broad perspective will be key to spotting opportunities from a distance. The most successful businesses will be the ones that have a clear vision and the confidence to act quickly and boldly when the time is right.

For many, this may sound like a year of challenges, but for those of us who appreciate tradition, we see it as a year of clarity and purpose. We wish you a happy and safe New Year, and we extend our best wishes for success in 2025.

Info@mrarrachecpa.com

The Smart Family Loan: Why a Promissory Note is Essential (Even for Family!)

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That moment when a relative steps in to help their family business is truly special. It’s a testament to family support, trust, and love. Recently, I had a client, whose relative generously lent them a large amount of money to help open their business. While the gesture was heartwarming, my immediate advice was clear: Get a promissory note signed.

You might be thinking, “It’s family! Does it really need to be so formal?” And my answer as a CPA is an unequivocal yes. A promissory note isn’t about distrust; it’s about smart financial planning, clear communication, and protecting both parties.

Let’s break down why this simple document is a must for any family loan:

The Promissory Note Checklist: What Needs to Be in It?

Think of a promissory note as the blueprint for your loan. It should clearly lay out all the terms to prevent any future confusion. Here’s what it should include:

  • Lender and Borrower Information: Full legal names and addresses for both your relative (the lender) and you (the borrower).
  • Principal Amount: The exact loan amount, written in both numbers and words.
  • Interest Rate: This is crucial! To avoid the IRS classifying the loan as a gift, the rate must be at least the Applicable Federal Rate (AFR), which changes monthly. We can look up the current rate together.
  • Repayment Schedule: Details on how and when payments will be made – monthly, quarterly, or a single lump sum, and specific due dates.
  • Maturity Date: The final date by which the entire loan, including interest, must be repaid.
  • Signature and Date: Both parties need to sign and date the note to make it legally binding.
  • Default Clause: What happens if payments are missed? This clause protects your relative and clarifies the process.
  • Prepayment Clause: Allows you to pay off the loan early without penalty – a common and fair clause for family loans.

The Pros of a Promissory Note: More Than Just Paperwork

Now, let’s talk about the significant benefits this document provides:

1. Legal and Financial Protection for Everyone

  • Avoids Nasty Tax Surprises: Without a note, the IRS might consider the money a gift from your relative. This could trigger gift tax liabilities for them on any amount over the annual exclusion limit. A promissory note provides undeniable proof it’s a loan.
  • The “Bad Debt” Lifeline: This is a big one! If, for unforeseen reasons, you are unable to repay the loan, the promissory note becomes critical documentation for your relative. It allows them to potentially claim a non-business bad debt deduction on their taxes. Without the note, the IRS would likely view the unpaid amount as an unrecoverable gift, and they’d lose out on that deduction.
  • Legal Enforceability: It’s a legally binding agreement. While no one wants to think about legal action against family, having this in place protects your relative’s assets.
  • Asset Protection for Both: In unfortunate events like bankruptcy or divorce, a promissory note clearly establishes the funds as a legitimate debt, protecting both your relative’s claim and your financial standing.

2. Crystal-Clear Clarity and Accountability

  • No More “He Said, She Said”: The note meticulously spells out all the terms – interest, payments, dates. This eliminates those awkward, “I thought we agreed on…” conversations that can damage relationships.
  • Fosters Responsibility: Formalizing the loan encourages the borrower to treat it with the same seriousness as a bank loan, fostering financial discipline and accountability.

3. Preserves Your Precious Family Relationship

  • Business is Business, Family is Family: A written agreement compartmentalizes the financial transaction. It allows you to keep the loan on a professional footing, preventing it from bleeding into and potentially straining your personal bond.
  • Head Off Disputes Before They Start: By defining the rules of engagement upfront, a promissory note removes the primary source of conflict in family money matters: misunderstandings, forgotten details, or differing expectations.

Potential Drawbacks and Tax Implications

While promissory notes offer many benefits, it’s also important to be aware of potential tax implications for both parties:

  • Interest Income for the Lender: For your relative (the lender), any interest received on the loan is considered taxable interest income that must be reported to the IRS. Even if the interest is not actually paid but is required by the note (especially if using the AFR), it may still need to be reported as “imputed interest.”
  • Cancellation of Debt (COD) Income for the Borrower: If for some reason the loan is partially or entirely forgiven, the amount forgiven can be considered Cancellation of Debt (COD) income for you (the borrower). This is generally taxable income to the borrower, unless specific exceptions or exclusions apply (e.g., insolvency, bankruptcy).

🏠 Bonus Section: A Special Note on Real Estate Loans

If a family loan is for a real estate purchase or is secured by a home in California, it’s considered a residential loan and requires extra steps for the lender’s protection. A promissory note is still essential, but it is not enough on its own.

In this scenario, the loan must also be formalized with a trust deed that is recorded with the county recorder’s office. This crucial step legally attaches the debt to the property, turning your relative into a secured lien holder. This protects their interest and establishes their priority over other potential liens. This is a critical legal process that an attorney must handle. They will ensure all documents are prepared and filed correctly to fully protect the lender and make the loan enforceable.

How to Record Real Estate Family Loans in Other States

The legal instrument used to secure a real estate loan varies by state, but the principle of recording the document is the same.

  • Arizona: In Arizona, the instrument is a Deed of Trust. It must be signed by the borrower and recorded with the county recorder’s office where the property is located.
  • Texas: In Texas, the instrument is a Deed of Trust. It must be signed by the borrower and recorded with the county clerk’s office where the property is located.
  • Tennessee: Like Texas, Tennessee uses a Deed of Trust. It must be recorded with the Register of Deeds in the county where the property is located.
  • Washington: In Washington, the instrument is also a Deed of Trust. It is recorded with the county auditor’s office where the real estate is situated.

The Bottom Line for Families

A family loan is a wonderful act of support. But to truly protect that generosity, that relationship, and everyone’s financial well-being, a promissory note isn’t just a good idea – it’s an essential one.

Disclaimer: As a CPA, I can help you with the financial and tax implications of this loan. However, the information provided here is for general educational purposes and is not legal advice. When dealing with any legally binding document, it is best practice to consult with your attorney.

If you or your family are considering a loan, let’s connect. I can help you navigate the financial and tax considerations of the loan, ensuring all parties are protected. Don’t let a kind gesture turn into a future headache; plan wisely from the start.

#FamilyLoan #PromissoryNote #CPA #FinancialPlanning #FamilyFinance #RealEstateLoan #TrustDeed #LegalAdvice #TaxPlanning #MoneyManagement

Is it Time To Sell Your Home?

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This time of year we are busy meeting with taxpayers, business owners and real estate owners, and it is very interesting to hear their battle stories and predictions for the economy ahead.

One common story that we hear, but more so this year, is that people are taking emergency money from their 401k’s and IRA’s to cover their monthly expenses for bills, mortgages, etc.

While most of the time, it is not a large amount, it is still indicative of a bigger problem. Is it time to sell your home?

Before we answer that, we need to deal with the problem at hand.

IF you took a early withdrawal from your retirement account you could face Federal and State penalties and taxes on the distribution. Contact your Tax Advisor immediately to discuss strategies to avoid the penalties (i.e. financial hardship, etc.) and prepare for the tax impact.

Back to the bigger problem; is it time to Sell your Home?

Thanks to inflation and rising interest rates, many households are making the most money ever, but still struggling to pay bills and the mortgage. On top of that, the housing market is indicating a top forming (California), and other areas are already experiencing rapid declines in the housing and rental markets (Arizona, Nevada, Oregon, Washington, Idaho, Wyoming, Texas, Florida). What to do o what to do….is it time to sell your home?

This article will not read like tea leaves telling the future, but, if you want to sell your home, contact us right away to go over our expert Tax and Selling Strategies. FREE intro consult for new customers.

Our team of licensed Tax and Real Estate Professionals can work with you in any U.S. State; we are here to help you today!
800-425-0570 (United States toll-free)

  • Tax Strategies to Avoid or Reduce Taxes on the Sale
    • Sale of Primary
    • Sale of Investment Property
    • Sale of Vacant Land
    • Sale of Improved Land (solar, cell, agriculture, aquaculture, mining, RV Park, etc.)
    • Charitable Conservation Contributions
  • Selling Strategies for a Successful Transaction
    • How to Negotiate the Highest Sales Price for your home
    • How to Mitigate Buyer Claims and Reduce Seller Credits
man riding a black bull

Naming the New Year: 2024 “Bucking Bull”

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Like many people, I enjoy a good tradition.

Whether it is a familiar tradition like the family vacation or nightly family dinners, One of our favorite Traditions is Naming the New Year.

The New Year Name is chosen before the new year starts and will reflect important plans, challenges, obstacles, etc. ahead in the New Year.

Typically We’ve used a simple nomenclature = action + name

For instance,

  • 2019 – “Riding Tiger”
  • 2020 – “Running Bear”
  • 2021 – “Soaring Eagle”
  • 2022 – “Hanging Man”
  • 2023 – “Hungry Hummingbird”
  • 2024 – “Bucking Bull”

Why is this important?

In my experience, the tradition of naming the New Year has been at times inspirational, accurate and foreboding.

2023 “Hungry Hummingbird”, for example, was pretty accurate for the volatile Housing Markets and true to form, unexpected but awesome, rebound of the Stock Markets.

As entrepreneurs and business owners, it is important to work IN your business as well as work ON your business. The New Year name helps us associate an idea larger than any 1 person and at the same time focus 100% on the work at hand.

2024 “Bucking Bull” will be a year of energy, enthusiasm and competition. Much like riding a Bucking Bull, Smart Business will navigate uncertain economy and avoid getting dragged into uncontrolled situations. It will be more important then ever to stay enthusiastic and align your journey with competitive advantages.

A lot of people probably stopped reading when I said “nightly family dinners”, but for those of you who appreciate a tradition, We wish you a happy and safe New Year and best wishes in 2024.

Info@mrarrachecpa.com

man riding a black bull
Photo by Louise Brawn on Pexels.com

Personal Use of Rental / Vacation Rental Tax Traps and Planning

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Vacation Rental Traps

If you are currently renting out your Primary or Secondary Home or using a Rental Property to vacation, then make sure that you are aware of all the tax rules and tax traps.

Self-Employment Income Tax Trap typically rental income is not subject to Self-Employment Taxes. But if you provide any additional services to the renters such as daily housekeeping or concierge services then the income become subject to Self-Employment Taxes. Reference IRS Ruling 57-108. Ultimately finding that “if services are rendered for the occupants and the services rendered (1) are not clearly required to maintain the space in a condition for occupancy, and (2) are of such a substantial nature that the compensation for these services can be said to constitute a material portion of the rent, then the net rental income received is not excluded under § 1402(a)(1) and is included in NESE.”

Personal Use Deduction Limitations If you also use your rental property as a *”Residence”, meaning more than 14 days OR 10% of the time the property is rented, then you will be limited on your rental deductions for that property. Important, some of the disallowed rental deductions might be deductible as elsewhere on your tax return such as itemized deductions.

Planning Tax Free Rental Income Special rule for minimal use of residence that you rented property fewer than 15 days. You do Not have to report Rental Income or Deductions if the property was rented less than 15 days. Important, some of the disallowed rental deductions might be deductible as elsewhere on your tax return such as itemized deductions.

Real Estate Professional Best of both worlds. With this rare and desired tax status you will get the benefit of ordinary income and losses not subject to self-employment taxes. IF you are designated as a Broker/Dealer then your tax classification will change dramatically in terms of Self-Employment Tax. For more information Reference IRC 469

If you own or manage Rentals or active Real Estate Broker/Agent, we are here to help you along the way. Meet your New CPA Today! Schedule Intro Consultation here.

Commercial Real Estate In Seizures. Dems shout back “He Needs Some Milk”

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Commercial real estate is going to be hurt bad in 2021 per expert predictions.

Downtown Los Angeles pictured below is the iconic US Bank building modeled after a Lighthouse tower; once thought to be a beacon for guiding the west, this slab of stone and metal sits like a tombstone looming over boarded up business windows and empty boulevard streets that reak of rot and recession.

Photo by Michael Arrache. Typically this street would be shoulder-to-shoulder with people and beautiful store fronts. Now its eerily empty.

Good news….

Famine for any broker still moving officespace, retail or hotels.

But like Warren Buffet says, when people are fearful get greedy.

For the winners out there who plan to ride it out (or Alamo that shit), the experts say to take advantage of short term swings in what we can only expect to be a very volatile short term market but plan for overall long term growth.

But good news if you’re a self employed CRE Broker. You can quality for free PPP loan money in certain cases. Talk to your bank’s SBA advisor for more information if you have not already but for sure see if you qualify for existing or upcoming government emergency money and freebies.

Reach out if you have any questions about this article or want to talk more about your business.

Info@mrarrachecpa.com

My Notes On 2021 Economic Forecast presented by Chapman University

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I recently attended an Economic Forecast presented by Chapman University via live webinar and here are my notes.

You can view a recording of the presentation here https://economicforecast.chapman.edu/2020-presentation/

  • General Notes
    • Presenters included James Dotti and Fadel Lawandy
    • The Chapman economic forecast has historically been one of the most accurate predictors of economic performance for over 30 years
    • James Dotti and his team have successfully predicted 17 of the last 18 presidential elections.
  • What happened in 2020?
    • Predicted a mild decrease in GDP growth(+2%), but COVID happened and annual GDP decreased by a large amount (-3%.)
    • Government Officials at State Level made exaggeration of an ermergency and unnecessarily shut down the economy
    • Covid Shutdown Cost: California shut down mandate causes loss of 500,000 jobs and countless businesses
    • Covid Shutdown Benefit: California shut down mandate saves 6,600 lives…
    • States with less stringent shut down mandates saw less job loss and stronger economic revovery
  • 2021 is going to be volatile with opportunities for buy in the short-term dips but expect long-term growth.
    • Growing Pent up demand – personal wealth dramatically increased in 2020 by 10%.
    • Housing affordability is at a recent all time high with historic low interest rates. Recent GDP recovery was driven primarily by consumer spending, not housing which is not necessarily good news. Watch housing market closely in 2021
    • Stock Market performance is based on how the economy is predicted to perform. Currently predicted at modest +/- 3% growth. Historically, Dem Pres, Rep Senate and Dem House produce the best results for the market +/- 16%. IF Dems control all 3, then historically market +/- 6%.
    • Government spending good for economy and will drive inflation which is good in short term but overall will cause problem down the road. Due to the coronavirus pandemic, Congress and President Trump enacted the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) on March 18, 2020. The Committee for a Responsible Federal Budget estimated that the budget deficit for fiscal year 2020 would increase to a record $3.8 trillion, or 18.7% GDP.[5] The CBO preliminary estimate for the fiscal year 2020 deficit is $3.1 trillion or 15.2% GDP, the largest since 1945 relative to the size of the economy.[6]
    • Remote life will change the structure of work life, more comparable to women in the workplace during World War II.
    • Expect a lot of commercial real estate properties to change purpose or be elimated all together such as Hotels, Retail, Office Buildings, etc. Estimated 20% of NYC Hotels and Retail will close forever.
  • Innovation regions are a major focus for real estate investors because high paying jobs create local wealth and investment opportunities.
    • Phoenix, Carlsbad, Reno and Salt Lake City are areas of interest for innovation hubs with real estate and tax advantage opportunities.
    • Orange County needs to create more high-paying tech jobs to replace the Hospitality/Leisure employment loss to remove two-tier society.
    • Artificial Inteligence will create a lot high-paying tech jobs.

Thank you to Chapman University, speakers and sponsors for an amazing 2021 economic forecast. Some great takeaways including my favorite Real Estate tip – buy where the son goes in the winter.

Until next year, thank you and take care.

Contact our CPA today if you any questions about this article or want to talk more about your business or taxes.

Info@mrarrachecpa.com