There’s no doubt that the restaurant industry has been hit hard by the pandemic. Even with delivery apps, take out, and outdoor dining in random parking lots, all in an effort to serve more customers, many restaurants are just starting to pick up the financial pieces from this past year. This why it is crucial to take advantage of as many money saving resources as possible. And apart of that money saving guide, here are five tax tips that restaurant owners may not have considered.
1. You can use the ‘safe harbor’ to your advantage
As a restaurant owner, you may have had to make a lot of adjustments this past year to try and make your business work. You may be able to deduct a good chunk of money spent on remodeling or refreshing under the IRS’ ‘Safe Harbor Method for Amount to Refresh Qualified Retail and Restaurant Buildings’ rule.
According to RewardsNetwork, a leading promotional program that supports the restaurant industry, “Retail and restaurant businesses may be able to deduct the cost of remodeling or even “refreshing” their locations by treating 75% of the qualified costs paid in a remodel as an “ordinary and necessary” business expense, with the remaining 25% capitalized and depreciated over time as costs for improvement to a qualified building. The remodel or refresh must be of larger scope than just a new paint job or cleaning regimen, however. Those two items are already considered deductible expenses.” Prior to this rule, these charges would likely have been identified as property improvements and 100% capitalized and depreciated over a period of time.
Check out more information to see if you qualify and can take advantage of this perk.
2. You can deduct expenses from PPP
If you received money from the Paycheck Protection Program, the good news is those funds are not taxable. Initially, it was decided that any expenses paid with PPP funds would not be tax-deductible. Luckily, late last year that has changed.
According to the Office of Advocacy at the Small Business Administration, “Without a legislative fix, small businesses with forgiven PPP loans or those with a reasonable expectation of forgiveness were facing likely tax increases of up to 37 percent for 2020. For many small businesses, such an increase would be devastating to their financial health and create an insurmountable deficit in the uncertain economic times the pandemic has created. Finally, Congress stepped in and clearly stated that business expenses paid with forgiven PPP loans are deductible.”
3. You can deduct employee benefits and wages
As a restaurant owner, your staff is family and part of your business model. You need them and the good news is you can deduct their wages and other employee benefits. It’s possible to deduct pay, paid time off, insurance, as well as employee taxes you pay into like Social Security.
You can also deduct any meals you offer to staff on their shifts as well.
4. You can take advantage of the Work Opportunity Tax Credit
You may qualify for a tax credit if you hire people from certain groups such as veterans, those on public assistance, etc. A tax credit can be even better than a deduction, so if you need to hire keep this particular tax credit in mind.
5. You may be able to deduct operating losses
If you had a net operating loss in 2020, you may be able to deduct the loss and ‘carry back’ and apply to a previous year and get a refund. You may also qualify for a carry forward, which uses the loss and puts it toward future tax returns.
As a restaurant owner, you may still be trying to get back on your feet again after a tough year. That’s why you want to maximize your tax benefits and get what financial support you can.
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Shiloh Johnson is a long-time CPA and founder of ComplYant, a technology platform offering business owners and entrepreneurs a simple way to manage tax rules and requirements.