The smallest words often cause the most confusion for anyone, especially business owners. Especially in restaurants, the tax laws are complicated. Your taxes depend on many different factors; location, size of the property, number of employees, and most importantly, income. Right now, restaurants are taking their bottom lines seriously as they prepare for lost sales due to closures or limited operations. Since it’s tax season, operators have to find new ways to save on taxes. So, to help, we’ve gathered the basic information you need to know to maximize your restaurant tax deductions and credits.
Tax Deductions for Restaurateurs
What is a Tax Deductions for Restaurants deduction? Tax deductions are expenses that reduce an individual or business’ tax liability by reducing their taxable income. Fees accrue over the year and can be deducted or deducted from your gross income to work out how much tax you owe. All deductions must be considered ordinary and necessary business expenses.
Besides labor, one of the first and most important expenses is food. Food costs may include raw materials, canned food purchases, spices, oils, etc. Food costs can also include spoiled food that is wasted and cannot be served. Desserts such as soda, bottled water, liquor, beer, juice, and milk are also part of the cost of food.
Another major expense for restaurants is labor for employees. This includes your front and back-office staff and managers. You can deduct the gross wages and employment taxes you pay based on tips such as employee work and unemployment, Social Security, and Medicare taxes. You can also include benefits like sick leave, retirement accounts, insurance, and vacation.
These costs include improvements to the kitchen equipment, tables, chairs, and buildings. It’s also a capital expense if you own a vehicle for a restaurant, such as a catering or delivery van. Capital expenditures have a lifespan of more than a year, so you must make them a business asset. This is to prevent them all from being written off within a year. The IRS does place limits on how much of each asset class can be spent each year.
Fees and Insurance
Any fees you pay, such as:
- Professional Fees – Accountants, Lawyers, Contractors
- bank charges
- Software fees – such as cloud-based POS stations and software-as-a-service (SaaS) applications
You can also deduct property and liability insurance, as well as other policies used to protect your restaurant location, employees, and customers.
Marketing and Advertising Expenses
Write off any marketing expenses you have paid, including but not limited to:
- social media advertising
- google ad keywords
Take advantage of current tax credits
According to Tax Deductions for Restaurants, “Tax credits are a direct reduction in tax obligations. Tax credits are an incentive for companies to engage in certain employment and/or investment activities such as:
- Hire individuals from certain groups facing high employment rates
- Hire or invest in economically distressed areas
- invest in specific activities
- Retain employees after natural disasters and other events. “
#1) Employee Retention Tax Credit
Eligible restaurants can receive the Employee Retention Tax Credit (ERTC) in 2020 and 2021 to receive financial relief in the form of an eligible employee payroll tax credit. These specific wage wages are only eligible if they are not paid directly from PPP loan funds.
#2) Credit for sick and family leave
Employees who are unable to work due to self-isolation due to COVID symptoms are entitled to up to ten days (up to 80 hours) of paid sick leave. This will be calculated at the employee’s regular salary, up to $511 per day, for a total of up to $5,110. These COVID-19-impacted situations will directly reduce your tax liability through sick and family leave credits.
#3) Job Opportunity Tax Credit
Another tax credit you can benefit from is the Job Opportunity Tax Credit (WOTC). WOTC is a federal tax credit available to employers who employ certain eligible persons who face barriers to employment.
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