Most restaurants are small businesses. Approximately 70 percent have a single location and 9 out of 10 have less than 50 employees according to the National Restaurant Association. For small businesses like restaurants every cent makes a difference. When tax time comes, it can put a lot of pressure on restaurants. That’s why it is important to understand all of the deductions available for restaurants.
Labor is a restaurants biggest expense and largest deduction. The cost of all your hard-working cooks, waiters, dishwashers, managers, hostesses, bartenders and other restaurant employees adds up. The costs of the wages, benefits and employment taxes of restaurant employees are fully deductible. Also, deductible are the costs of any contracted entertainers such as musicians, as well as marketers and promoters.
You can also deduct the cost of any meals eaten by employees on the premises. This is a great benefit for restaurants which allows them to offer a great benefit and team building to your restaurant employees. Learn more about what the team building benefits of staff meals can be here.
Food accounts for about a third of restaurant expenses. Food is not considered inventory though. Food costs are actually considered “non-incidental material and supplies” which means the cost of food may or may not be currently deductible. Restaurants actually have a choice on how to handle the cost of food.
Other Restaurant Deductions
Most of the rest of the standard deductions for restaurants fall into the following categories:
Operating Costs: The cost of rent, utilities, and other basic business costs, such as office supplies.
Insurance: Restaurants require property insurance to protect the restaurants property such as kitchen equipment, televisions, dining tables and chairs, and every other item against damage or theft. Liability insurance is also required to insure against injury of customers or employees. All business-related insurance premiums are fully deductible.
Smallwares: Smallwares generally consist of glassware, flatware, dinnerware, bar supplies, pots and pans, cooking tools and utensils, and appliances under $500.
Advertising: Restaurants may write off the cost of advertising through all medias. Additionally, the cost of building and maintaining a website is also deductible. You can also write off the cost of designing and printing marketing items such as t-shirts, table toppers, and banners.
Menus/Printing: The design and printing of menus, coasters, business cards, signs and other printed business items are deductible as well.
Vehicles/Mileage: The cost of a vehicles such as a delivery van can be deducted based on the amount of use for business. Otherwise the mileage of any vehicle used by any restaurant personnel can be deducted if they use such vehicle for picking up or dropping off anything related to the restaurant.
Capital Improvements: The cost of capital improvements to the restaurant are deductible. Capital improvements must be depreciated over time based on the cost and scope of the improvements.
New 20% Deduction
In 2018 the Tax Cuts and Jobs Act was signed into law. Among the provisions of that Act is a new 20% deduction for individual Owners and Operators of restaurants with a “qualified business income” from a proprietorship, partnership, LLC, or S-corporation. This deduction is taken by the restaurant owner on their personal tax return. It reduces their taxable income but not their gross income.
When tax time comes there are a lot of deductions for restaurants and it is important to understand and maximize these deductions. It is highly recommended to employ the service of a qualified and experienced tax professional whom specializes not only in business, but restaurant taxes. It should be noted the cost of the services of said tax professional are tax deductible as well.