Welcome to tax season! For many business owners, the first quarter of the new year can be an extremely stressful time. You’re charged with bringing your books up to date, organizing all your financial data into a clear format, and presenting it to the IRS in compliance with local and federal guidelines. Fortunately, there are a few simple ways that restaurants can make this complex process a little simpler. In order for restaurants to prepare for tax season, here are the top 3 tax tips for restaurants in 2023.
1. The Devil is in the Data
The most important way to prepare for doing your taxes is by keeping great records. Use your Point of Sale system to track every sale and expense, including supplies, operating costs, and wages – including your own salary. The more precise your record-keeping, the easier it will be to organize your finances when you’re preparing your restaurant’s tax return.
Your liability will depend on what kind of business you operate – a sole proprietorship, an LLC, or a corporation. Some owners will see a greater connection between their personal income and their business’ profits. Others will need to prepare two distinct tax returns, one for the restaurant and one for themselves as individuals. If you’re not sure which option applies to you, consult with an accountant to be sure. It’s important to file all your taxes in a timely manner, and it may be necessary to file for an extension. This won’t impact how much you owe, but it may improve the accuracy of your return – especially if you have to file more than one form.
2. Deduce, Deduct, Save Money
Your deductions represent a valuable opportunity. These are expenses that you won’t have to pay taxes on, which will lower the cost of your return. Take every deduction that you legally can in order to decrease the amount of money you owe.
For restaurants, some of the allowable deductions may surprise you. For example, you’re entitled to deduct expenses associated with the cost of office supplies, utilities, your linen service, and even the design and printing of your menu.
3. A Labor of Love
Since restaurant employees often rely on tips, you may pay them a lower wage than is standard in other industries. Of course, this depends on your local laws. Even so, there are a number of regulations that apply to a restaurant’s labor taxes.
First of all, employees are required to pay taxes on their tips, even those received in cash. While this doesn’t directly affect your business’ tax return, it may have a big impact on employee satisfaction. It’s a good idea to remind your employees of this during tax season, so they can be sure to avoid any unnecessary audits.
Most importantly for the business, restaurant operators are required to pay various taxes on employee wages. These taxes include (but are not limited to) income tax and social security tax. Review the local and federal laws that apply to your type of business, and be sure to include any appropriate labor taxes for your staff.
As we approach April 15th, it can be difficult to find the time to focus on doing your taxes while also running your restaurant. Hiring a good account is one excellent way to deal with this. Additionally, you might consider building an hour into every day when you focus on accounting. Working slowly but diligently is a great way to avoid any errors in your tax return.