Tax Planning For Restaurants
The nature of the restaurant business leads to unique income tax issues even though restaurants are subject to the same rules. If all of a restaurant’s tax obligations and strategies are understood, owners can take appropriate steps, comply with tax rules and reduce their income tax liabilities.
Federal Taxes
Federal taxes represent a restaurant’s largest income tax burden. Restaurants must pay federal income taxes on all income they receive at each location where they do business. This income includes not only in restaurant dining income, but also other revenue generating activities such as catering and investments. Depending on how a restaurant is structured for tax purposes, federal income tax returns are filed either at the end of the restaurant’s fiscal year or at the end of the owner’s own personal tax year. Restaurants earning income must make quarterly estimated federal income tax payments, or risk paying an end of year penalty to the IRS.
State taxes
Restaurants in most states have to pay state taxes. State income tax liability depends on the restaurant’s tax structure. More states charge income tax on the corporate level and some do not. Some income taxes are flat or progressive and vary by state.
Tax issues facing restaurants
Restaurants face some unique challenges when faced with several tax issues. As restaurants often deal with cash they must carefully track their cash income and ensure that all cash transactions are reported to the IRS.
In regard to tips, the waitstaff has to deal with their own income tax issues. Employees and restaurateurs must account for tips that are subject to their own income tax rules.
Reduction Strategies
There are a number of tax planning strategies that can help restaurateurs reduce their income tax liability and all possible deductions should be looked at.
It is suggested that all alternatives be discussed with a qualified professional prior to making any decisions.
