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Tax Tips and Deductions for Restaurateurs

From grilling delicious rib-eye steaks to ice cream parlors serving the sweetest flavors in town, restaurateurs of all kinds look to delight their customers with the high-quality food and beverages they serve every day. While the food industry pays a lot, restaurateurs are eligible to take advantage of some tax-saving strategies and tax breaks to help them save money and comply with tax authorities. Follow these tips from 1-800 accountant to help you process taxes and deductions more easily.

Know Your Sales Tax Requirements

Make sure you fully understand the sales tax requirements of the city and state where the restaurant is located. This is even more important if you operate multiple locations.
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Keep in mind that cities, counties, and states often have different sales tax requirements. Each location where you operate your restaurant may require separate sales tax collection and filing, so it’s critical to keep track of this important financial information so you can properly report and file all sales tax to all relevant agencies.

Consider depreciating some expenses

When purchasing equipment for your restaurant, you can deduct the cost of the equipment in the year of purchase, or you can reduce the amount over several years as the value of the equipment depreciates. More expensive equipment, such as ovens, is usually best depreciated to maximize tax savings.

Understanding Compensation and Taxes

If your employees receive compensation and benefits, there are some rules about deductions for this pay and the allowances you give them. Any form of compensation you issue must be for work performed by your employees. If the IRS reviews your Tax Deductions for Restaurants and payroll data and determines that you are overcompensating employees based on other compensation amounts reported in the restaurant industry, these payments you provide may not be fully deductible. However, by maintaining reasonable compensation, you should be fine when you log out.

Consider your mileage deduction options

If you use your personal vehicle to deliver food at an event or serve food to a catering group, don’t forget that you can deduct the miles you drive for your business or the actual cost of driving you in the restaurant business — not both. Also, once you’ve chosen any of these write-off options, you’ll typically stick with this method for several tax years. Therefore, it is wise to do the calculations to determine which option will save you the most tax.

Understand employee diet and taxes

The cost of providing food to an employee at the physical location of the restaurant is usually deductible from the restaurant and is not taxed on the employee. This cost may be included in the food cost or may be recorded as a separate cost.

Proper record-keeping is essential

Always maintain reliable tax records by recording all purchases and filing all relevant receipts. It is very important that managing a restaurant costs a lot more than other types of self-employed. Consider keeping paper and electronic copies of these records for safekeeping and easy access should you need this financial information. This data is also necessary for bookkeeping requirements.

Explore business tax credits

Consider the Job Opportunity Tax Credit – If your restaurant employs individuals in your “target group,” which often includes veterans and people with disabilities, your business may qualify for a nice tax deduction. This tax credit is usually equal to 40% of the corresponding employee’s first-year salary, up to a maximum of $6,000.

Tax Deductions for Restaurateurs

A Tax Deductions for Restaurants is a tax-saving measure you can take to reduce the amount of taxable income you report on your tax return. For example, if you earned $1,000 in a given year and claimed a deduction of $100, you would only have to report $900 of taxable income when you file a Form 1040 or business return. As a restaurateur, you can generally deduct the following expenses incurred in running your business when you file your income tax return with the IRS:

  • Food costs, i.e. ingredients, prepackaged/canned food, oil, sugar, flavors
  • Kitchen utensils i.e. pots, pans, ovens, microwaves, toasters, blenders, dishwashers, plates, soaps, etc.
  • Dietary supplies, i.e. plates, bowls, cups, utensils, paper products, napkins, table condiments, etc.
  • Employee wages, insurance, retirement accounts, sick leave, vacation pay, and bonuses for your chefs, servers, hosts, bartenders, dishwashers, and anyone else helping in your restaurant.

Employee gifts up to $25 per person per year

  • Property rental costs you incur to maintain your restaurant location
  • Maintenance costs of the property, i.e. utilities, cleaning services, structural repairs, etc.
  • Equipment, i.e. tables, chairs, barstools, cash registers, computers, lamps, window displays, restaurant d├ęcor, menus, office supplies, and other related items
  • Depreciation of property, you can deduct smaller amounts gradually over several years
  • Accounting, legal, merchant processing, and other professional service provider fees required to successfully maintain a restaurant business
  • Property insurance, liability insurance, and other policies designed to protect your brick-and-mortar restaurant location, employees, and customers
  • Marketing and advertising expenses, such as coupons, flyers, websites, social media ads, Google AdWords, and other paid advertising to promote your restaurant

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