Properly recording and categorizing expenses is an important part of bookkeeping. It gives the business owner insight into how their money is being spent and helps them maintain a healthy cashflow. And when tax time comes, they can maximize their deductions because the necessary records have been kept throughout the year.
Every industry operates in its own unique way so expenses vary across different types of businesses. In this blog post, we’ll explore the expenses restaurant businesses commonly incur.
Paid sick leave, vacation pay, and health insurance benefits provided to employees are tax deductible for the restaurant business.
If you or your restaurant’s employees drive to make deliveries, provide catering, or pick up supplies, these costs can be deducted from your taxes. The key is to accurately track the miles driven for business purposes. You can learn more about the mileage deduction in this blog post.
Accelerated depreciation expenses
In the past, certain capital investments could only be depreciated over a number of years. With Section 179, some equipment can be depreciated as a lump sum in the year of the purchase. The break is meant to make it more affordable for small businesses to buy up to $500,000 worth of qualifying equipment — including computers, vehicles, furniture, and kitchen appliances.
Many restaurants allow their employees to order a free meal during their shift or provide a “family meal” for everyone to share together. These meals are deductible at cost for the restaurant and not taxable to the employee.
Many restaurants are unaware there is tax benefit for donating unused food. You can claim an enhanced deduction if the food is donated to an organization that qualifies under section 501 and you meet other requirements set by the IRS.
It’s common for restaurants to throw a party for their staff during the summer or holiday season. The cost of a holiday party is fully deductible for the restaurant, as long as it’s hosted primarily for the employees. That means you shouldn’t invite your friends or favorite customers. However, your employees are allowed to bring their spouses or significant others.
You should also make sure your party isn’t too lavish. An excessive holiday party deduction can cause the IRS to take a closer look at your company’s entire tax return.
In addition to hosting a party, many restaurants give their employees gifts during the holidays. Gifts are deductible for the business, provided they don’t exceed $25 per employee per year.
In most cases, a gift is not taxable income for an employee. They’re considered a de minimis fringe benefit, which is Latin for “of minimal value.” The IRS notes on their website that gifts are de minimis as long as they cost less than $100 for each employee. So adhering to the $25 limit will keep both you and your employees in good shape from a tax perspective.
However, one exception is gift cards. Because they have a cash value, gift cards are taxable income for employees, regardless of the amount.
The Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) encourages businesses to employ people who traditionally face challenges finding work. You can receive a tax credit for hiring veterans, people with a criminal record, food stamp recipients, residents of Empowerment Zones, and people referred by vocational rehabilitation services.
Bookkeeping Express (BKE) specializes in accounting and bookkeeping for quick service restaurants, full service restaurants, coffee shops, and specialty food providers. Visit our restaurants page to learn how BKE can assist your business.