The IRS has a guide dedicated to helping restaurateurs avoid common tax traps. You can find a simplified explanation in the article below.
In a Nutshell: Restaurant Taxes
The amount of tax you pay depends on many factors, including the location of your restaurant, how much it sells, and how many employees are employed. The exact tax requirements vary at federal, state, and local levels. Below are the most common information types you must include on tax forms.
This is the total of all sales and receipts. This includes all food sales in a restaurant. But it would be best to have any revenue from merchandise, franchise agreements, licensing fees, or educational workshops.
It can help you calculate the revenue of your restaurant. Click here.
Your labor costs include wages and additional taxes, such as Social Security, Medicare, unemployment insurance, and 401(k).
Even if your staff primarily works on tips, you will still be responsible for some of these costs as an employer.
Stock and supply
The cost of consumables and low-cost supplies used for food preparation and serving are included in the inventory. You would have the cost of all ingredients and one-off items such as cookware, silverware, and dishware.
Taxes on takeout or eat-in
The food you serve can be eaten at your restaurant or in a customer’s home. Treats takeout orders as taxable sales in most states. Depending on where you live, you may also be required to notify the local tax authorities of these sales.
All significant investments made when you start a restaurant are included, from the purchase of stoves and ovens to refrigerators. Capital investments include renovations done to expand a restaurant.
This category includes the day-to-day expenses of running your restaurant. Cleaning services, office supplies, and repairs could be included in these expenses.
Considerations for restaurant tax deductions
You can lower your tax liability by using deductions. This will allow you to keep more from each sale. Restaurant deductions include the following:
- Depreciation A method of accounting that reflects the decline in value over time of expensive equipment.
- Staffing You may deduct wages, benefits, and payroll taxes.
- Food expenses: The cost of goods sold is another expense you can remove.
- Marketing: Each dollar spent on marketing, promotion, or loyalty programs could be deducted as an expense.
- Administration Remember to include legal fees and interest on credit cards and business loans.
Consult a professional tax advisor to ensure all your paperwork is correct. This expert will help you determine what expenses are deductible and taxable. If your restaurant purchases supplies or services, you can deduct the cost. It may include consulting a tax expert.
Considerations based on business type and location
The exact tax reporting requirements can vary by state, city and. Search online for “what tax restaurants pay + [your city].
Tax liability is also a function of the structure you choose for your business – whether it’s a corporation, LLC, or limited liability company (LLC). There is an article that explains the differences between each of these legal entities.
Keep records with these tips.
You can manually track your tax paperwork if you have a family-run business with a fixed menu and prices. The majority of restaurants do not fall under this category because they:
- Menus and prices are constantly changing
- High employee turnover is a problem.
- Reward programs and loyalty programs are a great way to reward your customers.
You’ll want to invest in an accounting system that will help you keep track of your expenses and sales, which are likely to vary from year to year.
You already have reporting capabilities if you use any Clover device for capturing sales at your restaurant or curbside. Clover partners with many business management software platforms on the Clover app market. This allows you to integrate your incoming sales with the accounting and tax tools you use to manage your restaurant.