Owning your own restaurant can be so exciting! You get to be in charge of such an elaborate and successful operation.
Although it can be a lot of fun and quite a challenge, you also have to remember to keep up with the not-so-fun parts of being a restaurant owner.
Navigating taxes when you have your own restaurant can be a little bit tricky.
Learn about some strategies for dealing with restaurant taxes to become more successful in your new endeavor!
Restaurant Taxes: Here’s What You Need to Know
Just like any other business owner, restaurant owners have to pay taxes. Here are some of the types of taxes you may have to pay.
You have to pay taxes on the profits your restaurant makes (income tax). Because your business is making money, the IRS needs to know how much you are making each year.
In addition to income tax, you have to pay property tax if you own the property your restaurant is sitting on. This is an important tax because it can cause you to lose your business if you don’t keep up with payments.
Payroll taxes are required based on the gross pay of employees at the restaurant. These are things like FICA, federal unemployment, state unemployment, workers compensation.
Food and other food products can have some complex tax rules in certain states. This is why keeping organized records of all sales is important for any restaurant.
Some mistakes to avoid when you are paying taxes for your restaurant are:
- Not having a system in place to report tips
- Failing to pay appropriate amounts of sales tax
- Misclassifying your employee type
- Over-reporting or under-reporting
- Failing to structure deposits accurately
- Not keeping records of what you sell or inventory
It’s important to know what you are trying to do with taxes if you own a business, such as a restaurant because you need to keep up with the rules in order to keep your business afloat.
Truthfully, with all of the taxes that need to be paid, organization is important. You have to be able to keep track of everything and know where your restaurant information is when you need it.
Tax Deductions for Restaurant Owners
When you own a business, tax deductions can help you save some money. A tax deduction helps to reduce how much taxable income you have to report on your tax return.
An example is if you earned $2,000 of income in one year and you claim $400 in tax deductions, you only have to report $1,600 taxable income on your tax forms.
As you can imagine, it doesn’t hurt to save some money when you have a lot of other stuff to pay for as a restauranteur.
What Should You Deduct?
You typically are able to deduct certain expenses that might come up for a restaurant. Some examples of what you probably will be able to deduct include:
- Maintenance expenses for your property (such as utilities, cleaning services, etc.)
- Eating supplies, including plates, bowls, cloth napkins, and similar items
- Beverages for the restaurant
- Food for the restaurant, including ingredients or pre-packed items
- Depreciation on property value
- Fees required to maintain business, such as for merchants, legal pursuits, or accounting
- Property insurance and other types of policies protecting the business
- Employee gifts up to $25 per employee each year
- Equipment, such as tables, computers, lighting, office supplies, etc.
- Rental costs to maintain location
- Marketing and advertising costs
- Kitchen appliances
- Employee fees, such as salaries, insurance, sick leave, PTO, and bonuses
Depending on your specific situation, you might have other tax deduction options as well.
The point is that there are ways that you can save money as a restaurant owner, even though average tax rates may be high in your area.
What Should Restaurant Owners Do to Make it Easier?
Some of the best restaurant owners could lose their businesses if they don’t pay their taxes.
It is so easy for the IRS to target just one person (the business owner) instead of targeting multiple people (the employees), so who do you think they will go after if something seems wrong?
If you own your own business, you need to have professional advice. Making a mistake with your taxes can cost you a lot, even if you aren’t caught right when it happens.
Even something like a math error could result in an IRS audit and no one has time or patience for that.
CPA firms, for example, can be a great help for people that are in need of financial expertise, especially for a large business.
Another benefit to working with someone that knows more about taxes than you might is that they can spot more tax deductions you could be taking advantage of.
With all of the other things that a professional restaurant owner has to buy, tax deductions can make up for it.
How to Pay Taxes Next Year
Being a restaurant owner is not necessarily a cheap decision. You have to pay for the restaurant, all the supplies, your employees, and much more.
The truth is that there are many things that you have to keep track of and it is important to keep up with your taxes if you want your business to succeed.
With all of the restaurant taxes you have to pay, you don’t want to get any information wrong!
Hiring someone to help you is a smart choice professionally.
Consider working with an expert to get the financial guidance you need in preparation for the next tax season. Your restaurant will thank you for it!