There are Mexican restaurants serving up savory quesadillas. Italian restaurants offer hearty pasta dishes. Ice cream shops make up some of the sweetest cones in town that will cool you down in seconds.
For every type of restaurant out there, you know there’s at least one hardworking business owner behind the scenes making their famous flavors come to life. If you operate a restaurant or beverage shop of any type, use the following tax tips to help you save more of your hard-earned income while staying compliant with all IRS, state, and local tax requirements.
Tax Tips for Restaurant Owners
- It is imperative to be up-to-date on the sales tax requirements of the state in which your restaurant is located. Cities, counties, and municipalities often have different sales tax requirements. If you operate restaurants in multiple states, you’ll face multiple state sales tax filings.
- When you purchase equipment for your restaurant, you can either deduct the cost of the equipment in the year in which it was purchased, or you can deduct it in smaller amounts as its value depreciates over the course of several years.
- To be eligible to write off employee pay and benefits, this compensation must be provided for work that your employees perform. If the IRS says you are overcompensating employees, it may not be fully deductible on your tax return.
- If you utilize a vehicle to deliver food or for catering purposes, you can deduct either the mileage or the actual expenses for your deliveries – not both. Determine which option will offer the biggest tax savings and opt for that deduction route.
- The cost of providing meals to employees at a restaurant’s physical location is generally deductible to the restaurant and not taxable to employees. This expense may be included in the cost of food, or it may be recorded as a separate expense on your IRS return.
- Always maintain comprehensive tax and financial records by documenting all purchases and keeping all relevant receipts. Managing a restaurant comes with far more expenses than other types of self-employment due to property, supplies, and employees, so keeping proper records can be the difference between a manageable IRS tax bill from Uncle Sam and an exorbitant one.
Tax Deductions for Restaurant Owners
As the owner of one or more restaurants, you can typically write off the following business expenses as a deduction when filing your tax return with the IRS.
- Food costs, i.e. raw ingredients, pre-packaged/canned food items, oil, sugar, spices
- Beverages, i.e. bottled water, soda, beer, wine, liquor, juice, milk
- Kitchen appliances, i.e. pots, pans, ovens, microwaves, toasters, blenders, dishwashing machines, platters, soap
- Plates, bowls, cups, utensils, paper products, table condiments, etc.
- Employee salaries, insurance, retirement accounts, sick leave, vacation pay, bonuses for your cooks, servers, hosts, bartenders, dishwashers, marketing team members, etc.
- Employee gifts up to $25 per person, per year
- Property rental costs
- Maintenance expenses for property, i.e. utilities, a cleaning service, structural repairs
- Equipment, i.e. tables, chairs, barstools, cash registers, computers, lighting fixtures, window displays, restaurant decor, menus, office supplies, restroom supplies
- Depreciation on property
- Fees for accounting, legal, merchant processing, consulting, and other professional service providers
- Property insurance, liability insurance, etc.
- Marketing/advertising expenses, coupons, flyers, a website, TV commercials, social media ads, etc.