Taxes for restaurant and bar owners
You know your food cost to the penny. Your return should be just as accurate. We handle inventory, tips, buildout, and delivery app fees the way the rules actually work.
Nothing is due today. Personal returns start at $250.
A restaurant return is not a normal small business return. Your food and liquor run through cost of goods sold with a year end inventory count, your delivery platforms deposit money net of their commission, the tips your staff report carry payroll tax and may support a credit for food and beverage employers, and the buildout you paid for is written off over time instead of all at once. Miss one of those and the numbers on the return stop tying out. We do this work for restaurant and bar owners, in English and in Spanish.
What restaurant owners can usually deduct
Ordinary and necessary costs of your work. Rules and dollar limits change year to year, so we confirm every one of these against the current year when we prepare your return.
Food and beverage inventory
What you pay for produce, proteins, dry goods, liquor, beer, and wine is cost of goods sold, not a plain expense. Your deduction is what you actually used, which means the count left on the shelf and in the walk in at year end changes your taxable profit.
Smaller businesses can qualify for a simplified way of handling inventory, so the exact treatment depends on your size and your accounting method. Either way, count the walk in, the freezer, the dry storage, and the bar on the last day of the year and write it down. Without a count the number is a guess.
Kitchen equipment and smallwares
Ranges, hoods, fryers, combi ovens, walk in coolers, ice machines, dish machines, POS terminals, and the sheet pans, knives, and hotel pans you replace constantly. Big equipment is a fixed asset. Smallwares you burn through in a year are usually a supply expense.
Equipment above a certain cost is normally depreciated over years, though first year write off provisions can apply depending on the asset and the year. Do not decide that on your own. Give us the invoice and the date it was placed in service and we will run it both ways.
Leasehold improvements and buildout
Hood systems, grease traps, plumbing runs, electrical upgrades, bar construction, tile, millwork, and dining room finishes you paid for in a space you rent. These are capitalized and recovered over time, not deducted the month you wrote the check.
A buildout does not become a same year deduction just because the checks cleared that year. It also matters what you paid for versus what the landlord paid for through a tenant allowance, so bring the lease and the contractor invoices together.
Rent, CAM, and percentage rent
Base rent, common area maintenance, your share of property tax and insurance billed through the lease, and percentage rent tied to sales are all deductible business expenses.
A year end CAM reconciliation invoice can land months later, and which year it belongs to depends on your accounting method. Tell us about it rather than assuming it lands in the year you paid it.
Employee wages, payroll taxes, and tip reporting
Line cooks, dishwashers, servers, bartenders, hosts, and managers. Gross wages, your employer share of payroll tax, and workers compensation premiums are all deductible business expenses.
Tips your staff report are wages for payroll tax purposes, and food and beverage employers may be able to claim a credit for part of the employer payroll tax paid on reported tips. Do not pay a cook or a dishwasher in cash off the books. Wages you cannot document are hard to defend as a deduction, the unpaid payroll tax stays your problem, and it turns a narrow question into a wide one.
Utilities and the gas bill
Electric, gas, water and sewer, grease trap pumping, hood cleaning, trash and recycling pickup, and pest control. A kitchen uses far more of all of it than an office does, and the business share is deductible.
If you live above the restaurant or share a meter with another unit, only the restaurant's share is deductible. Get a reasonable allocation on paper before you claim it.
Linens, uniforms, and laundry service
Aprons, chef coats, bar towels, tablecloths, napkins, and the weekly linen service invoice. Distinctive uniforms carrying your restaurant's name or logo are deductible, and so is cleaning them.
Plain black pants and plain black shirts are not deductible even if you require them, because they are suitable for everyday wear. A branded chef coat or a logo polo is different. The test is not what you told staff to wear, it is whether the clothing can be worn off the clock.
Licenses, permits, and health inspections
Business tax receipt, liquor license, food service permit, health department fees, food handler and manager certifications, music licensing for the dining room, and sidewalk cafe permits.
A liquor license you bought from another operator is different from a license you renew every year. A purchased license can be an asset written off over time rather than a current expense. Bring the closing statement.
Delivery platform and payment processing fees
The commission third party delivery apps take, credit card processing, POS software subscriptions, online ordering and reservation platform fees, and gift card processing.
Delivery apps often deposit net of their commission. If you only book the deposit, you are understating both your sales and your fee deduction. We need the platform's monthly statement, not just the bank feed.
Marketing and local promotion
Menu design and printing, photography, signage, social media and ad spend, sponsoring the little league team down the block, restaurant week fees, and the tasting event you catered for exposure.
Free food you give to a promoter or an influencer is not a second deduction. Its cost already sits inside your cost of goods sold, so writing it off again counts the same dollars twice.
Vehicle use for the business
Runs to the restaurant supply store, the produce market, the bank, and catering drop offs are business miles. You can use actual costs or the standard mileage rate published for that year, whichever your records support.
Driving from your house to your own restaurant is commuting and is not deductible, no matter how early the shift starts. The business mileage starts when you leave the restaurant for a business errand. Keep a log with the date, the destination, and the purpose.
Business meals and staff meals
Meals with a vendor, a purveyor, a landlord, or a potential investor where business is actually discussed, and separately, the meals you furnish to your own staff during shifts.
Business meals are subject to a percentage limit set by law, and that limit has changed more than once, so we apply the rule for the year in question. The treatment of meals you furnish to your own staff has also been narrowed by recent law changes, so do not assume last year's answer carries forward. Feeding your own family in your own dining room is not a business meal.
A single owner restaurant can be reported on Schedule C, and that is a reasonable place to start. Once profit is consistent, or you take on a partner, add a second location, or bring in outside money, a separate entity return often makes more sense than a Schedule C, both for the tax treatment and for keeping the restaurant's finances separate from yours.
What to bring us
You do not need all of it to start. Send what you have and your checklist shows what is still open.
- Year end POS sales reports, showing food, beverage, and alcohol separately
- Monthly statements from every delivery and online ordering platform, showing gross sales and their commission
- Merchant processor year end statement and the payment card reporting form your processor sends
- Your physical inventory count at the start and the end of the year, covering the walk in, freezer, dry storage, and bar
- Payroll reports for the year, including reported tips and your employer payroll tax filings
- Sales tax returns you filed and proof of what you remitted
- The signed lease plus any CAM reconciliations or percentage rent statements
- Invoices for any equipment or buildout work, with the date each item was placed in service
- Loan and equipment financing statements, including any merchant cash advance agreements
- Last year's tax return and your entity paperwork, including the EIN letter and any S corporation election
What trips people up
Treating food purchases as a straight expense and skipping the inventory count
Take a real physical count on the last day of the year and keep the sheet. Cost of goods sold is your purchases adjusted by what is still sitting on the shelf, and without a count your food cost and your taxable profit are both wrong.
Booking only the net deposit from delivery apps
Record gross sales and the platform commission as two separate lines using the app's monthly statement. Netting them understates your revenue on paper, which makes your books disagree with the payment card reporting your processor and the platforms send in.
Writing off the entire buildout in the year the checks cleared
Give us the contractor invoices with dates and amounts. Leasehold improvements are capitalized and recovered over time, and separating out the parts that may qualify for faster treatment is a real analysis, not a guess.
Paying kitchen staff in cash with no payroll record
Put everyone on payroll. Cash wages you cannot document are hard to defend as a deduction, and the unreported payroll tax is a bigger exposure than the wages themselves. If this already happened, tell us before we file so we handle it correctly.
Running personal spending through the restaurant account
Open a separate account and card for the business. Groceries for the house, the family cell phone plan, and personal travel mixed into restaurant expenses are easy for an examiner to spot, and they weaken the deductions that are legitimate.
What it costs
Our published list, the same one everyone sees. Prices marked "from" are starting points, and your exact number is confirmed in writing before any work begins.
$0 is due today. You pay when you sign, or you can have your fee come out of your refund, so it can be $0 out of pocket.
Questions we get from your trade
Do I have to pay tax on my servers' tips?+
Tips are reportable wages. Your employees report their tips to you, and you as the employer pay your share of payroll tax on the tips that get reported. Food and beverage employers may be able to claim a credit for part of that employer payroll tax on tips, and it only works when tips actually run through payroll. How tip income is treated on your employee's own income tax return has changed under recent legislation, so we handle that year by year rather than by rule of thumb.
How is the food I buy treated on my return?+
Food and beverage purchases go into cost of goods sold rather than sitting as an ordinary expense. Your deduction is what you actually used, which is your beginning inventory plus purchases minus your ending inventory. That is why the year end count matters. Skipping it does not save you time, it just makes the number wrong.
I paid for the whole buildout myself. Why can't I deduct it all this year?+
Improvements to a space, whether you own it or lease it, are capital expenditures. They are recovered over a period set by law rather than expensed all at once. There are provisions that can accelerate part of it, and how much depends on what the money bought and when the work was placed in service. Bring us the invoices and we will tell you what qualifies before we file, not after.
Can I deduct the meals my staff eats on shift?+
The employer side of this has changed. Recent legislation narrowed the deduction for meals furnished to employees on your premises, so whether you can deduct them, and how much, depends on the year we are filing. Track staff meals separately from your regular food cost so the correct rule can be applied. What is clearly not deductible is you and your family eating in your own dining room, and that is worth being clear about now rather than in an exam.
Should my restaurant be an LLC or an S corporation?+
It depends on your profit, how much of the work you do yourself, and whether you have partners. A single member LLC with no election still reports on Schedule C, and the profit is generally subject to self employment tax. Once profit is steady, an S corporation election can change how that tax lands, but it requires running real payroll for yourself at a reasonable wage and it adds filing costs. We run the actual numbers for your restaurant before recommending a change, because the wrong election adds cost with no benefit.
What about the sales tax I collect?+
Sales tax you collect is not your income. You are holding it for the state, and it should not show up as revenue on your return. This is a bookkeeping error we correct regularly. Bring your filed sales tax returns and proof of what you remitted so your gross sales tie out to what the state already has.
Let us take the tax part off your plate.
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