Tax Write Offs for Restaurant Owners
We don’t want to waste your time in today’s blog by talking about tax deductions & write-offs that you can use in any business.
We’re assuming that you’re a business owner, and you already know of the typical tax write-offs such as home office deductions & car mileage.
Instead, we’re going to talk about 3 tax write offs that are specifically for the restaurant industry.
So, if you’re a restaurant owner, listen up. These 3 restaurant tax write-offs can save you tens of thousands of dollars each year:
Restaurant Tax Write-Off #1: The FICA Tip Credit
Let’s start with The FICA Tip Credit – one of our favorite topics.
We’ve written comprehensive blog posts about the FICA Tip Credit which we recommend reading next.
But in a nutshell, this credit is only available to businesses in the food and beverage service industry and is a refund of all your employer-paid contributions of Social Security and Medicare tax on all employee tips that got reported as wages.
So, if you own or operate a bar restaurant and you’re not filing form 8846 with your business tax return, you’re losing tens of thousands of dollars every year.
Here’s an action to do now.
- Go get your business tax return
- Look for Form 8846
- If it’s there, great! You’re doing well. If not, it’s time to find a new accountant who is better versed in the restaurant industry.
Restaurant Tax Write-Off #2: Food Donations
The next tax write-off for restaurants has to do with food donations.
As restaurant accountants, we beg you to stop throwing your food away.
Now, we get it. Food spoils! And that’s different.
But if you are throwing food away because it’s getting close to expiration and you don’t want to give it to your customers, you can benefit financially by donating it to charity instead.
Let’s say you spend $5 on a piece of beef, and you could sell it to your customer for $15.
Normally, you would be like, oh, it cost me $5, so I get a $5 donation.
That’s not how it works when it comes to restaurants and grocery stores.
In the restaurant industry, you get a step-up basis in that donation.
So, for example, on that $5 piece of beef, that you can sell for $15 to your customer. If you donate it, you can get a deduction of $10. Did you hear that?
Now, there’s some math in those calculations. In my example, it is $10, but it does depend upon the markup, and there are two different ways to calculate it.
But the short story is that you get a step up in the cost to donate it.
There’s a lot more documentation to go around this write-off, but it’s definitely worth pursuing with your restaurant accountant.
Restaurant Tax Write-Off #3: Pre-Opening Costs
The last restaurant tax write-off we want to talk about has to do with preopening costs for multiple locations.
We’ve seen a lot of businesses (and accountants!) do this wrong, so let’s start at the beginning.
Hopefully, when you opened your first bar or restaurant, you or your tax accountant accounted for your pre-opening costs.
These are costs such as location research, location construction, employee training, payroll costs before you open, and any food and/or recipe testing that happened before the restaurant was open and servicing customers.
But surprisingly (or not), you’re not supposed to deduct these costs.
The IRS requires that you amortize these over 15 years. So, most of the pre-opening costs are not deductible and instead are slowly written off.
However, if you decide to open a second location, as long as you follow the IRS common ownership rules, you can immediately deduct these pre-opening costs instead of slowly writing them off over 15 years.
So, if you have multiple locations and you’ve had the same ownership, and you keep seeing writing off over 15 years of these preopening costs, that’s wrong.
You only have to do it one time. Then, on all your other locations, you can immediately get a tax write-off.
So, if you felt the cash pinch on your first location because you didn’t get the deduction, you will get the benefit on your second, third, and fourth locations.
Have a Question About Restaurant Tax Write-Offs?
Have a question about your restaurant tax write-offs that we didn’t answer? Our experienced restaurant accountants are always here to help.
Simply get in touch with us over on our Getting Started page and schedule your free consultation call. We’ll help answer any questions you still have.
Until next time, stay U-Nique!