When you decide to open a restaurant, it is more likely that you’d focus on the menu than your accounting statements. From sit-down, family restaurants coming up with delicious meals to ice cream shops offering the sweetest variety of flavours in town, there are all types of restaurateurs out there who want to make their customers happy through the high-quality food and beverages they serve each day.
Thus, planning taxes is a key part of improving your bottom line, especially when you can find ways to save money. We’ve tracked down the most intriguing tax deductions for restaurant owners so you can find new ways to invest in your business without sweating the bill:
1. Comprehend your sales tax requirements: Stay on top of the sales tax requirements of the city and state in which your restaurant is located. If you operate in multiple locations, this is even more important.
Remember that cities and states often have different sales tax requirements. Each location in which you maintain a restaurant may require separate sales tax collections and filings, so it’s critical to keep track of this important financial information so you can properly report and submit all sales taxes to all respective agencies.
2. Be regular with your bookkeeping: Keeping a record of every purchase done for business helps quick and fair access f\to all the expenses that can be deducted from the income. It is usually advised to maintain both hard and soft copies of all the records to avoid discrepancies. The burden of proof is on your business to prove your deductions. You don’t have to include your business records with your tax payments, but you must be able to show the documents an auditor as proof of the deductions. Keep especially good records for business driving expenses, gifts, and for depreciating property.
3. Manage the cost of equipment: Restaurant owners need to invest in an array of equipment eg tables, chairs, barstools, computers, lighting fixtures, window displays, decor, menus, supplies, and other related items.
Keeping a record of every purchase done for business helps quick and fair access f\to all the expenses that can be deducted from the income. It is usually advised to maintain both hard and soft copies of all the records to avoid discrepancies.
Also, when purchasing equipment for your restaurant, you can either deduct the cost of the equipment in the year in which it was purchased, or you can deduct it in smaller amounts as its value depreciates over the course of several years. More expensive equipment, such as an oven, is often best to depreciate to maximize your tax savings on it.
4. Understand employee pay and benefits: The cost of providing pay and benefits including bonuses, commissions, sick pay, and vacation pay and meals to employees at a restaurant’s physical location is generally deductible to the restaurant and not taxable to employees. This cost may be included in the cost of food, or it may be recorded as a separate expense.
5. Costs of goods sold: The restaurants need to purchase the raw material and some finished goods like packaged drinking water and juice and other drinks. This requires inventory management and the difference between the initial and ending inventory is called as cost of goods sold. The cost of goods sold (COGS) is a critical deduction for your restaurant because it directly affects your gross profit each year. It’s also a tricky calculation for your tax return because the food and supplies in your inventory change daily.
6. Manage your mileage deduction options: For the restaurants that provide outdoor services or delivers food to the customers, the transportation cost accounts for a good amount of share in the expenses. It can be included as either the distance traveled or the cost incurred for traveling. The same option, of counting transportation in expenses, needs to be followed in a certain consecutive year.
Only restaurant owners understand that their business is not as fancy as it appears. However, following the above practices can help them to reduce their taxes. If you need assistance in drawing the best tax benefits for your business, help is certainly around the corner.
At BMC SAAS, we are proficient in providing 360-degree accounting services to clients around the world. BMC SAAS will take care of all your accounting frustrations so you can focus on what you love. To learn more about how BMC SAAS can help your business, contact us about your business’ requirements.
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