While we strongly advise every small business owner to partner with an accounting firm for tax preparation and filing, we understand that many restaurant owners are simply not aware of certain tax provisions that could save them a lot of money.
Because restaurants have unique costs, you are eligible to claim deductions to reduce taxable income. By maximizing your tax deductions, you lower the reported profit for your restaurant, which helps minimize the taxes you owe.
In preparing documents for your accountant, be sure to include information regarding the following tax provisions:
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 new is you can offset food and beverage costs by taking tax deductions on raw ingredients (meats, vegetables), pre-packaged or canned foods, and indirect food costs such as oils, seasonings, and condiments. Also, don’t forget about spoilage or wasted foods. Such items are open for tax deductions as well.
Bonus Tip: Remember, you are allowed to write off these costs as they incur rather than when the food is actually used for meal preparation.
In addition to the wages, salaries, and bonuses you pay employees, you are allowed to deduct employee benefits as an expense. Such benefits include: health insurance, paid vacation and sick leave, and even employee meals. Any employee tips (reported to the IRS), are also eligible for tax deductions.
Bonus Tip: 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.
Marketing & Advertising
How many direct paid ads did you run this year in local newspapers? Did you put some advertising dollars into online channels such as Facebook or Google Adwords? Did you sponsor a local softball team or charitable event? These expenses can certainly add up. Keep in mind that most investments in marketing and advertising involved in promoting your restaurant are tax-deductible.
Bonus Tip: Website redesign and maintenance fees are also eligible for deductions. Tally all of your marketing and advertising costs to help ease your tax burden.
Depending on your establishment, you and/or your employees may incur expenses while delivering food, traveling for catering events, or picking up supplies. Tracking mileage may be a tedious task, but the process is rewarded come tax time.
Bonus Tip: Educate employees on tracking mileage and check out some smartphone apps created to help with the process.
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, contact us for a consultation and download our Restaurant Profitability Checklist below.