Do individual McDonald's franchises file separate tax returns or do they all report to corporate HQ for one master return?

Franchise owner here (not McDonald's but another major chain). Each franchise location is typically its own separate business entity that files its own tax returns. When you buy a McDonald's franchise, you're essentially buying your own business that operates under the McDonald's brand and system. You would likely set up an LLC or corporation for your franchise, and that entity would file its own tax returns. You'd pay royalties and other fees to McDonald's corporate, which would be tax-deductible expenses for your business. McDonald's corporate files their own separate tax return that includes the royalty income they receive from all franchisees plus income from any corporate-owned locations.

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Current McDonald's franchisee here. To add some color to what others have said - as a McDonald's owner, my business is completely separate for tax purposes from McDonald's corporate. I pay them royalties (currently 4% of gross sales) plus a service fee (currently around 4-5% for advertising and other services). I've set up an S-Corporation for my business which owns two locations. This gives me some tax advantages like avoiding self-employment tax on a portion of my income. The franchise disclosure document (FDD) will outline all the fees and financial expectations, but it doesn't dictate your business structure - that's up to you and your tax advisor.

One thing to be aware of with McDonald's franchises that affects your taxes - McDonald's typically owns or controls the real estate and leases it to you as the franchisee. This is different from some other franchise systems. The lease payments are tax-deductible business expenses, but it also means you're not building equity in the real estate (which can be a major asset).

Great question! I work in tax preparation and see this confusion a lot with new franchise owners. Each McDonald's franchise is indeed a separate business entity that files its own tax returns - you're not part of McDonald's corporate tax return at all. When you buy a McDonald's franchise, you're purchasing the right to operate under their brand and systems, but you're running your own independent business. You'll typically form an LLC or corporation, get your own EIN, and file separate tax returns. The royalty fees you pay to McDonald's corporate (currently around 4% of gross sales) are just business expenses you deduct on your return. One key thing to consider early - many multi-unit franchise owners I work with wish they had structured their business entities better from the start. If you're planning to eventually own multiple locations, talk to a CPA about whether to set up separate entities for each location or use a holding company structure. It can save you headaches and money down the road. Also worth noting that franchise tax situations can get complex with things like equipment depreciation, building improvements, and the real estate lease arrangements that McDonald's typically uses. Definitely budget for a good accountant who understands franchise businesses - they'll more than pay for themselves in tax savings and compliance.