When you are a Restaurant owner, you have dozens of things to manage from employees, inventory and insurance.
Its critical that you watch for every penny so you can maximize your profit. Small change in food cost or labor cost can dramatically change your profitability.
We have compiled a list of Tax Deduction for Restaurant owners that will help you minimize your taxes and maximize your profits.
- 1 Best Tax Deductions for Restaurant Owners
- 1.1 Advertising & Marketing
- 1.2 Business Vehicle Expenses
- 1.3 Commissions Paid(Example Uber Eats & Door Dash)
- 1.4 Contract Labor & Outside Services
- 1.5 Depreciation
- 1.6 Employee Retirement Plans
- 1.7 Business Insurance
- 1.8 Interest Expense
- 1.9 Legal & Professional Fee
- 1.10 Rent
- 1.11 Office Expenses
- 1.12 License and Permits
- 1.13 Vehicle/Equipment Lease Expense
- 1.14 Employee Wages & Payroll Taxes
- 1.15 Utilities:
- 1.16 Business Travel:
- 1.17 Business Meals
- 1.18 Supplies
- 1.19 Food Cost (Cost of Goods Sold)
- 1.20 Repairs & Maintenance
- 1.21 Janitorial Service
- 2 When to Issue a 1099?
- 3 Learn More
Best Tax Deductions for Restaurant Owners
As a restaurant owner, you’re always looking for ways to save money. And one of the best ways to do that is to take advantage of all the tax deductions available to you. The IRS allows owners to deduct a variety of expenses.
We have compiled a comprehensive list of tax deductions for Restaurant Owners. By taking advantage of all the deductions available to you, you can keep more of your hard-earned money in your pocket. Lets check out these deduction…
Advertising & Marketing
Expenses paid to promote your businesses such as Google AdWords, Print Advertising, Post Cards, Door Hangers, Coupons, Digital Advertising and Marketing can all be deductible form you income.
Business Vehicle Expenses
Expenses pertaining to Business vehicle that is used for work are tax deductible. For example Fuel, Repair and Maintenance, DMV Fee, Vehicle Wash and Cleaning can be deducted from gross income of the business. There are two ways of deducting vehicle expenses.
Either you can use Actual Method or Mileage. If you use Actual Method, you get to deduct Fuel, Vehicle Insurance, Repairs, Depreciation of vehicle or you can use IRS Mileage Rate Set for each year.
Commissions Paid(Example Uber Eats & Door Dash)
You can deduct commissions paid to various vendors Such as Uber Eats, Door Dash and Merchant Credit Card Commissions paid to American Express, Visa.
Contract Labor & Outside Services
If you hire independent contractors to perform certain duties such as direct sales, marketing, or legal work, you can deduct these expenses as Contact Labor or Outside services expense on your schedule c or 1120, 1120s or 1065. Don’t forget to issue 1099 to any vendor you pay $600 or more in one year.
When you purchase assets in business such as Machinery, you can write off a portion of the amount over time. For example if you purchase a equipment or machinery for $50,000, you write off the amount over 5 to 7 years. So each year you will write off $10,000.
This amount is called depreciation deduction. If you prefer you can get a bonus depreciation that can help you write off the cost of the equipment in one year.
Employee Retirement Plans
There are many retirement plans available for Restaurant owners such as 401k, Defined Benefit plan, Pension Plans, SEP IRA. When business pays money in these plans on behalf of employees, small business can deduct the cost as an expense on their business tax return.
Typically most businesses buy insurance to protect their businesses, employees and customers. Hence many type of business insurance is deductible such as Liability Insurance, Workers Compensation Insurance, Fire and Casualty Insurance, and Term Life insurance of employees up to $50,000 death benefit.
In order to start, build or grow, small business owners take business loans. Interest paid on these business loans and business credit cards can be deducted as an ordinary and necessary expense.
Legal & Professional Fee
In course of doing business you have to hire many professionals who can help your business such as Attorney & Accountants. You can deduct the professional fee you pay to these professionals.
In order to run your restaurant business your business rent is tax deductible along with any storage rent you may be paying to public storage or any other place to store your inventory or furniture.
Many general office expenses that pertain to office can be deducted in this category. These include Apps, small software expenses.
License and Permits
License and permits required to operate business can be deducted. For example for a restaurant A city License, County License and Health permits may be required. These are all required to operate your business hence they are fully tax deductible.
Vehicle/Equipment Lease Expense
If you lease any Kitchen Equipment, business truck or car you get to expense these amounts.
For Example, if you lease a dishwasher and pay $100 dollars a month, then you can deduct $1200 for the year from the total taxable income.
Employee Wages & Payroll Taxes
If you hire employees and pay them wages, you get to deduct these from your gross income. In addition to employee salary you can also deduct employer portion of payroll taxes as well.
Restaurant Utilities Such as Water, Garbage, Electricity and Security alarm can also be tax dedutible.
If you need to travel for business you get to deduct Airline Tickets, hotel stay and meals during travel
If you conduct business during, after or before the business meal you get to deduct it. Depending upon the year they may be deductible 50% or more. Please verify this with your accountant as this category is changing all the time.
Any business supplies such as paper, pads, staples, printer toner are all deductible as long as they are used for business purpose.
Food Cost (Cost of Goods Sold)
For your restaurant businesses any raw food and supplies purchases you do in order to prepare food and serve can be included in COGS. These might include items such as sugar, salt, Meat, flour, oil and so on.
COGS is typically calculated:
Beginning Inventory Plus Purchases(during the Year) Minus Ending Inventory.
Repairs & Maintenance
If you pay for any repairs and maintenance for your restaurant they are tax deductible. For example you may need to call a plumber to fix a leaking faucet or fix a broken glass door.
You can not only deduct repairs but You can also deduct maintenance as well. For example Window cleaning, or weekly Gardner service.
Many Restaurants has professional janitorial companies come and deep clean their restaurants at night. This is a necessary and ordinary expenses that is required to have professional presence and clean environment. Hence this expense is tax deductible.
TIP: If you are self employed and are looking to find more information about small business and self employed, we highly recommend you check out IRS Publication 334
When to Issue a 1099?
Per IRS guidelines, If you pay Any one vendor $600 or more during one year period, you are required to issue a 1099 to them either a 1099 NEC or a 1099 M.
We recommend you have the vendor fill out a W9 form at the beginning of relationship and keep in your permanent file. You can download form w9 from the IRS website.
1099 has long list of rules and regulations. We highly recommend you check out Comprehensive 1099 Guide by, Clicking Here
Cafe Vs. Restaurant: Which one is better.