Tax Tips For Restaurant Operators

Next month doesn’t just bring April showers, but along with them, tax time. And if it seems that doing your annual taxes gets more complicated, the fact is that there are many things to keep on top of, and a number of things that are easy to overlook.

Stacy L. Gilbert, CPA, a partner at Citrin Cooperman in the firm’s Springfield, New Jersey, office, concentrates on restaurants. Here she provides tips for restaurant owners and operators, to ensure you file your taxes correctly, and don’t miss out on any rebates for which you are eligible.

Following her advice can also help avoid any unpleasant surprises if you are audited.

  • Make sure you are using the correct rate to calculate the FICA Tip Credit for your company’s business tax return. Many accountants or business owners incorrectly use $7.25 as the minimum wage to use for this calculation, but instead it should be $5.15. You could be losing hundreds or thousands of dollars by using the wrong amount.
  • Ensure you are paying use tax on any food or beverages that you give away. Depending on the state you do business in, food and drink is taxable unless you are selling it, in which case your customer pays the tax, but if you are giving complimentary beverages or using the products in promotional events, you must pay the tax. Your POS system should be designed to capture these items appropriately.
  • Ensure your employees are correctly reporting their tips. Use the worksheet with form 8027 (Employer’s Annual Information Return of Tip Income)to verify that the tips employees are reporting correlates with the credit card payments you have on file. This will help determine whether employees are reporting all of their tips.“Unreported tip income can lead to additional employer liability for FICA taxes so it is in your best interest to educate your employees to properly report their tips,” Gilbert explains.
  • If between February 3, 2010 and January 1, 2011, you hired an employee who had not been employed for 40 hours a week for the 60 days prior to the hire, and you retained that employee for at least a year, you are eligible for a tax credit. This amount is either $1,000 or 6.2% of the wages paid to the retained worker—whichever is the lesser amount. Because a year had to elapse before this credit went into effect, many restaurant operators may have forgotten about it, according to Gilbert. This falls under the 2010 Hiring Incentives to Restore Employment Act.
  • Do not count the sale of gift cards as income until they are redeemed. This is considered Deferred Income for some restaurants. However, after the last day of the second tax year following the year of sale, you do need to report the income from any gifts cards—even unredeemed ones—as taxable income. “The IRS is looking to this more as an area to audit,” Gilbert warns.
  • Double check that you are using the correct social security number for your employees. You can verify them at
  • Using a 52- to 53-week tax year rather than a calendar year is an option for restaurant operators and can make life easier because certain things—inventory, payroll—typically take place on the same day every week or month.

By Amanda Baltazar


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