We strongly advise every small business owner to partner with an accountant for tax preparation and filing. However, if you're not working with an expert, you're probably not making the strategic tax moves that can save you a lot of money.
Restaurants have unique costs, so you can claim tax deductions to reduce your taxable income. By maximizing your tax deductions, you lower the reported profit for your restaurant, which helps minimize the taxes you owe. This is best done with the guidance of a monthly accountant because they're in your books year-round, but you can learn the basics here.
At CSI Accounting & Payroll, we've worked with small business tax strategy for more than 50 years. That means we've spoken to hundreds of restaurant owners just like you - and we know the most important deductions for you to keep in mind. When you prepare your tax documents, be sure to include information regarding the following tax provisions:
- Food and beverage costs
- Employee benefits
- Employee tips
- Marketing and advertising
- Mileage
Food & Beverage Costs
Food costs are one of the largest expenses for restaurants, often amounting to more than one-third of total expenditures. The good news is you can offset food and beverage costs by taking tax deductions on:
- Raw ingredients (meats, vegetables)
- Pre-packaged or canned foods
- Indirect food costs (oils, seasonings, condiments)
- Spoilage or wasted foods
Remember, you are allowed to write off these costs as they incur rather than when the food is actually used for meal preparation.
Employee Benefits
You probably already know that you can deduct the wages, salaries, and bonuses you pay employees as an expense. However, you may not know that you're also allowed to deduct employee benefits as an expense. Such benefits include:
- Health insurance
- Paid vacation and sick leave
- Employee meals
Think about the way you pay yourself as well. There are several ways for a business owner to take profits from their business; make sure you are paying yourself in the most tax-advantageous way possible. If you need assistance, an accountant can help you with this.
Don't have employee benefits in place yet? Then you're not differentiating yourself from other employers. Employee benefits are a great way to hire and retain the best employees. Learn more about how to get employee benefits here.
Employee Tips
Any employee tips (reported to the IRS), are also eligible for tax deductions. This is obviously a major deduction for the restaurant industry, as tipping is common!
If you do accept tips, don't sleep on the FICA tip credit. This is often overlooked by annual tax accountants, but the monthly accountants at CSI know the power of the FICA tip credit because we've recommended it to so many restaurants. If you claim this, it can cover the FICA taxes you paid on your employees' tips.
Marketing & Advertising
Tally all of your marketing and advertising costs to help ease your tax burden. These expenses can certainly add up.
Keep in mind that most investments in marketing and advertising involved in promoting your restaurant are tax-deductible, such as:
- Direct paid ads in local newspapers
- Online channels, such as Facebook or Google AdWords
- Sponsor a local softball team or charitable event
- Website redesign and maintenance fees
Mileage
Depending on your establishment, you or your employees may incur expenses while:
- Delivering food
- Traveling for catering events
- Picking up supplies
Tracking mileage may be a tedious task, but the process is rewarded come tax time. Educate employees on tracking mileage, and check out some smartphone apps created to help with the process.
Minimize Your Restaurant Taxes With an Accountant
Your unique restaurant costs mean that you can claim tax deductions in these areas to minimize the taxes you owe: food and beverage costs, employee benefits, employee tips, marketing and advertising, and mileage.
If you're not working with an expert, you're probably not taking advantage of these tax deductions. However, we hope this empowers you to do some research on the credits yourself - or to even do some research on accountants that are the best fit for your business.
If you're interested in looking into monthly accounting, why not consider CSI Accounting & Payroll? To find out if we can be a good fit for your business, click the button below to schedule a free consultation:
Not ready to talk yet? That's okay! These suggestions for restaurant write-offs are merely a drop in the bucket for saving money on your business-related taxes. For more details on reducing your tax liability, download the Restaurant Profitability Checklist below.
