6 Tips for Better Preparing Your Restaurant for Tax Season

If you own or operate a restaurant, there are many factors which may have motivated you to get into the restaurant business. Dealing with taxes is probably not one of them. Taxes are a necessary part of business and have been for eons. The bottom line is taxes are an unavoidable part of operating a restaurant, so let’s take a look at some things you can do to be prepared for taxes. Here are six tips for better preparing your restaurant for tax season.

1. Pay Your Taxes

This may seem obvious, but so many restaurants get into trouble by falling behind on their taxes. Not paying or fully paying your taxes is a slippery slope into a hell, you are best avoiding at all costs. The IRS representative who is happily working out a payment plan for your taxes, will just as happily garnish your bank account or take your business. Do everything you can to keep up with your taxes and stay out of tax trouble in the first place.

One common tax problem for restaurants and all small businesses, is not paying payroll taxes throughout the year. “Making payroll” can never simply mean having the money to pay your employees, it absolutely must include paying the payroll taxes as well. This is a lesson you don’t want to learn the hard way. Payroll always means wages and taxes.

2. Keep Track of Everything

 In order to maximize your deductions, you must have all of your documentation. This is easy to say but can be difficult in real life. You get to write off just about everything your business spends money on. Many of those things are significant and easy to keep track of. Rent, payroll, insurances. Lots of items can be more difficult to track. Small items such as office supplies, small wares and equipment can easily fall through the cracks.

Vehicle or mileage expenses can be tough to track as well. If you have a vehicle owned and used exclusively by the restaurant, you can write of the cost of it. It is more likely the vehicle utilized by your restaurant is your person vehicle. Keep excellent records of the miles used for business by you and your employees as well.

3. Keep Track of Cash

Having electronic records has made a lot of us lazy and for some reason we have more difficulty than ever keeping track of transactions which aren’t electronically recorded. These are cash transactions. Restaurants used to be a cash business and a lot of old school restaurant Owners remember the days when they only accepted cash and they paid cash for everything, even rent.

Times have changed and the more you rely on electronic tracking of your spending, more likely you are to lose track of something you paid for with cash. A lot of cash still flows through restaurants and it can be tempting to pay cash for a service or product here or there, simply because it may be convenient. If you don’t have a solid plan for recording cash payments, you shouldn’t pay cash for anything.

4. Don’t Mix Business with Pleasure

Make sure you don’t mix your personal spending with the restaurant spending. Don’t use business bank accounts or credit cards to make any personal purchases and vise versa. If you are doing some personal shopping and you see something you need for the restaurant, be sure to make separate purchases and use business money to pay for the restaurant item. You might think its not much or you will save the receipt to track it, but that is how expenses fall through the cracks.

5. Use Restaurant Accounting Software

Today the software available to help businesses track expenses is better than ever. Make sure you use a software which specializes in restaurants and is simple to use. Complicated software can increase the number of mistakes and cost you money.

6. Work with an Experienced Accountant

It is also recommended to work with a qualified accountant who is experienced with restaurants. A good accountant will put you on a course to be prepared for tax season. It is important they are experienced with restaurants because restaurants are different and you want to learn from their experience, not teach them from yours.