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Restaurant Tax Guide: Last-Minute Tips and Advice

This content is for informational purposes only and is not intended as legal, accounting, tax, human resources, or other professional advice. You are responsible for complying with laws and regulations yourself. You should contact your lawyer or another relevant advisor for advice specific to your situation. According to the National Restaurant Association, restaurant income tax rates can be as high as30%scope, depending on business structure (sole proprietor, LLC, etc.). In an industry that lives or dies on tiny profits, tax preparation and planning is an essential survival skill.

Income tax is part of doing business. In the restaurant world, preparing for income tax is like preparing an intricate formal banquet—bringing together the ingredients for all your front- and back-office operations, then spreading them out for a rainy day.

Internal Revenue Service

  • (IRS) review.
  • More than just profits and sales, your tax form is the sum of your business activities, including:
  • Wages/Labour Costs – Wage amounts paid to employees, total hours worked (and in which areas), employer taxes, and other taxable benefits such as bonuses and tips.
  • Inventory – the cost of food, beverages, and other items you need to run your business.
  • Sales Tax – The total amount of federal, state, and local Tax Deductions for Restaurants and paid to the respective authorities.
  • Capital Investment – Large purchases, such as major kitchen equipment or the building where the restaurant is located.
  • Other Expenses – Other business expenses, from basic maintenance and repairs to office and cleaning supplies, are part of your day-to-day operations.

Too many people think that running a restaurant is for the food and forget that it’s a business and needs to be run like a business – which is why so many fails. Restaurant math is the basic formula for success.

To get the information you need, your point-of-sale (POS), accounting, time tracking, inventory, restaurant payroll, and other systems must work together – generating and sharing the data that becomes your cost of sales (COGS), income statement, and other important reports.

In addition to all this restaurant software, qualified bookkeepers and accountants are invaluable in establishing processes and procedures to accurately record all of this information. They’re also your best friends during tax season, as they keep your filing process stress-free and cover all the numerous tax-related bases involved in running a restaurant.

Minimize tax payments by maximizing deductions

Tax Deductions for Restaurant (fees you can claim based on what you owe) are the best way to lower your overall tax bill. Here are some tax deductions that all restaurants should know:

Depreciation

A fancy way of saying that you can claim some or all of the cost of major purchases, such as ovens and other large kitchen equipment. (Some of these fees may require you to apply for a certain percentage each year for a set period of time.)

Cost of Goods Sold (COGS)

Include all items, inventory, labour, etc. used to produce the meals you provide. In some cases, you can even ask to pay for food/ingredients prepared off-site.

Marketing and Advertising Expenses

You can claim almost anything, with the exception of political ads.

Software

Includes cloud-based software-as-a-service (SaaS) applications.

Employer Tax (Payroll Tax)

You can deduct employer-paid Social Security and Medicare contributions, as well as federal and state unemployment taxes (FUTA/SUTA).

Employee Rewards

Gifts and celebratory meals over $25, such as holiday parties or team building activities.

Job Opportunity Tax Credit

If you hire workers in a target group, such as veterans or those who may face barriers to employment, you can claim up to 40% of your first-year salary, up to a maximum of $6,000.

Professional Fees

Include bookkeeping and accounting fees, as well as any other professional services such as lawyers.

Contractor cost

You can claim contracting fees of $600 and up.

Maintenance and Repair

Facility maintenance and repairs are deductible expenses.

Decoration

Restaurants can write off up to 75% of renovations due to a “safe harbour” agreement.

Insurance

You can deduct property, liability and other premiums.

The interest you can claim interest on vehicles you lease or buy for your business and on facility mortgage or lease payments.

Commercial use of the vehicle mileage, maintenance, fuel, insurance, parking, and other expenses associated with a car or truck used for business purposes can also be written off.

Bank charges

Any fees incurred as part of running a business, including ATM fees.

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