Tax Tips for Restaurants

Income and sales tax payments are not the most fun things to discuss, but there are some money saving tips that may be of interest to you.  The key to reducing your tax liability is maximizing your allowed deductions.  Knowing which deductions you qualify for takes time and patience, but we have a list of the most common restaurant deductions that hopefully you aren’t missing.

The most common deduction for restaurants is the cost of raw ingredients and pre-packaged foods.  You are allowed to deduct food costs that are incurred (not just what has been used).  Food costs are one of your highest expenses, but fortunately you can reduce tax liability by deducting the following: raw ingredients, pre-packaged or canned food, indirect food costs (frying oil, condiments), wasted food (spoiled or stale).

Labor costs are also deductible – provided they are reporting to the IRS.  Employee salaries (cooks, servers, managers, bartenders), bonuses, tips, sick leave, vacation pay, and health insurance.  If you are unsure about what tips are being reported, ask your payroll provider for a reported tip report.

Most marketing costs are deductible.  Did you run a marketing campaign to gain new customers last year?  If you did, it is likely that some or all of those costs are deductible.  Deductible marketing costs include direct advertising, online ads, brochures, billboard and sign rentals, promotional costs, sponsorships and even website design, are deductible.  Be careful because coupons and discounts are not deductible from your taxes.  Also deductible are the costs of hosting charitable events.

Depreciation of equipment is often missed.  Most new business equipment can be depreciated over its useful life or expensed immediately under the IRS code section 179.  This provision of the law permits you to deduct the full cost of the capital asset in the year of purchase up to $25,000.

Making the most of your deductions takes tax planning year-round to maximize.  It’s a tough task to keep logs of tax deductions during the year, but it is the most effective way to capture everything you need for tax time.  If you haven’t been keeping records, now is the time to start organizing for next year.

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