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It’s that time of year again! Time to prepare for tax filing, or get a head start and file now.  This time around, we will take a look at tax filing for restaurant owners. Just like any other business, restaurants are required to pay certain taxes on income, property, payroll, and more. Let’s take a look at some of the different types of taxes restaurant owners pay, along with some tips for doing so.

Types of Taxes Restaurant Owners Must Pay

Tips: Cash and tips charged by credit cards that restaurant owners receive from customers are subject to being taxed. Employees should report all tips to their employers, which should then also be reported on a Form 4070 as tip income. This form is usually filed to the IRS on every tenth day of the month once the tips are received.

Payroll: Like any other business, payroll taxes are a percentage of employee income paid to social security and Medicare. Restaurant owners must collect these taxes from all employees, full-time and part-time.

Property: Property taxes are imposed by the city in which the restaurant is located. Restaurant owners and those who lease are responsible for these taxes.

Sales: Sales taxes must be collected by restaurant owners on all food and beverages they sell. Whether the tax is included into the price of the item or added to the subtotal of the bill, sales taxes must collect even if the state in which the restaurant operates doesn’t charge taxes on food.

Liquor License: If restaurants hold a liquor license, owners are responsible for paying taxes on all alcoholic beverages sold.

Franchise: Some states charge franchise taxes. If a restaurant is part of a franchise, they are responsible for this payment. Franchise taxes are based on the net worth of the entity.

How To Prepare For Filing:

Organize All Of Your Files & Receipts: Restaurant owners can make their lives easier by having all of their files already organized. Organize receipts by date and category (ex: travel expenses, food, supplies, etc.), print copies of previous state and federal tax returns, have any necessary tax records and employee records available, and provide all important corporate and ownership documents. The more information you have the better, and the more organized you are, the easier the process will be.

Get statements for your restaurant business loans  Let your accountant know about any restaurant business loans you have taken out this year since you can deduct the fee’s and interest from these to help reduce your tax obligation. Call the funding company and ask for an account statement and ship that over to your accountant. This can save you a lot of money if done properly.

Decide How You Are Going To File Your Taxes:  Different methods work for different people. Decide whether you’d like to do your taxes on your own via e-filing software, file them manually on your own, or hire a tax preparer or CPA. All methods are sufficient; however, be sure that you are confident in whichever you choose. It is, however, recommended that restaurants with a significant staff or larger company as a whole incorporate the help of a CPA or tax preparer.

Fill Out The Proper Forms:  Just like choosing a filing method, filling out the proper forms is extremely important. If you are unsure, consult with a tax preparer or CPA. The types of tax forms you fill out will be determined by how you run your business.  For example, if you run an LLC, you would need to fill out Form 1020. If you run a sole proprietorship, you may file a Schedule C.  As mentioned earlier, to file taxes on tips received by employees, you would fill out a Form 4070. Do your research ahead of time to avoid any confusion.

Save Your Records:  After your taxes have been completed and filed, it is best practice to keep your records for at least 7 years in case audits were to occur. Having all the necessary documents will keep you safe and save you from a huge headache.

Consequences of Not Filing:

Liens on Your Business and Personal Assets: Tax liens are imposed by the law on personal and business assets, such as property, as a result of failing to pay your taxes.

Levy and Garnishments  on Accounts:  A levy allows the IRS to garnish your wages or take money from your accounts and seize personal property such as vehicles or real estate.

Negative Impact on Credit Scores:  Depending on how much you fail to pay in taxes, the IRS can file a lien which can negatively impact your credit score by as much as 100 points.

Prevents Institutions From Extending Credit: Failure to pay your taxes can result in financial institutions being unable to either extend or provide you with lines of credit.

Penalties and Interest: Late filing or failing to pay taxes can cause you to accumulate penalty fees and interest on top of the initial amount owed.


For a full tax filing tip guide check out our Guide below

Small Business Taxes: Last Minute Tips Before Filing Your Business Tax Returns

Don’t let a heavy tax bill affect your business! Excel Capital Management can provide you with the capital you need to pay your taxes and avoid the severe consequences of not filing.
All of our funding products are tax deductible!