Tax Guide for Restaurants and Food Service Businesses

Tax Guide for Restaurant Owners

Tip Reporting

Employee Responsibilities

• Report all tips to employer monthly if over $20
• Report on tax return even if not reported to employer

Employer Responsibilities

• Withhold income and FICA taxes on reported tips
• If employees report less than 8% of sales, may need to allocate tips
• File Form 8027 (annual tip reporting) if applicable

FICA Tip Credit (Form 8846)

Restaurant owners who pay FICA taxes on employees' tips above the federal minimum wage are entitled to a tax credit.

Credit = Employer FICA taxes paid on tips above $5.15/hour

This can be a significant credit for restaurants!

Cash-Intensive Business Tips

• The IRS scrutinizes cash businesses closely
• Maintain detailed daily sales records (POS reports)
• Z-tapes (daily register totals) are essential documentation
• Discrepancies between POS data and reported income raise red flags

Inventory and Cost of Goods Sold

• Track beginning and ending inventory for COGS calculation
• COGS is a key deduction: Gross sales - COGS = Gross profit

Equipment Deductions

• Commercial kitchen equipment qualifies for Section 179 and bonus depreciation
• Leasehold improvements: 15-year recovery period, eligible for bonus depreciation

Liquor Licenses

Capitalize and amortize if purchased outright. Annual renewal fees are deductible.

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Restaurant owner? Our team understands the unique tax landscape of the food service industry.