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Tax Considerations for Restaurant Owners

October 2017

David Crisp, Senior Manager at Weyrich, Cronin & Sorra, Chartered.

Owning a restaurant comes with a unique set of challenges and opportunities. Fortunately, there are some benefits in the tax code that apply to restaurants. Restaurant owners should be familiar with these benefits to minimize their tax burden. Here is a list of some items to consider:

FICA Tip Tax Credit

The FICA Tip Tax Credit is an easy credit to miss if the owner and tax preparer are not familiar with the industry, which is unfortunate, because the savings to the restaurant owner can be substantial. This credit can be claimed against a portion of the FICA taxes that are paid throughout the year on the tip income of the employees. The credit is claimed on an annual basis using Form 8846 of the entity’s federal income tax return. If your restaurant is set up as a “pass-through entity,” such as an S Corporation or a Partnership, this credit is reported on the K-1 and the owner is eligible to claim the credit on their individual income tax return.

Qualified Restaurant Buildings and Improvements

Certain buildings and improvements may be eligible for a shorter depreciation write-off period if they meet the definition of “qualified restaurant property,” meaning that more than 50 percent of the square footage of the building is used for meal preparation and seating for consumption. Buildings and improvements that may otherwise be subject to a 39-year depreciation period may qualify for a shorter 15-year period and be eligible for immediate deduction through Section 179. Accelerating these deductions for depreciation can have a substantial economic benefit due to the time value of money.

Repair Regulations

If your business has a written capitalization policy in effect, any expenditures of less than $2,500 can be expensed in the year incurred, without having to capitalize the amount and depreciation over a longer time period. For business with an “applicable financial statement,” which means a certified audited financial statement, this limit can be as high as $5,000. This rule is in effect for all businesses, but can be especially valuable to restaurants who often have some purchases each year under these thresholds.

Work Opportunity Tax Credit

The Work Opportunity Tax Credit is a tax credit designed to encourage businesses to hire from members of certain targeted groups, such as a qualified veteran who meets certain criteria, a long-term unemployment recipient, an ex-felon or others. Certain paperwork must be obtained during the onboarding process of the new employee in order to qualify for the credit, so it is important not to wait until the end of the year to determine which new employees may be eligible. Form 8850 can be given to job candidates to help determine eligibility for the program. This credit is available to all businesses; however, we have seen where restaurants are often able to take advantage of this program. The maximum credit varies depending on the targeted group. This credit is currently scheduled to expire on Dec. 31, 2019.
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David Crisp, Senior Manager at Weyrich, Cronin & Sorra, Chartered, has approximately 15 years of public accounting experience and has worked extensively on audit, review, compilation and tax engagements in various industries including real estate, construction, restaurants and other businesses. Dave also provides audit services to employee benefit plans such as 401(k), Defined Benefit, ESOP and multiemployer plans. Dave joined the firm in 2001 and holds a Bachelor of Science Degree in Accounting from Stevenson University and a Masters in Business Administration from Loyola University. He is a member of the American Institute of Certified Public Accountants and the Maryland Association of Certified Public Accountants. Dave is involved in numerous civic organizations, and currently serves as Treasurer for Habitat for Humanity Susquehanna.

Weyrich, Cronin & Sorra