Recipes for managing taxes: 4 tips for food truck owners

Food trucks have been popular for a long time in cities like Portland, Oregon, and Austin, Texas. However, the trend is rapidly growing in popularity in smaller heartland cities. Because it typically requires less overhead than a brick-and-mortar restaurant, a food truck can be a great investment for an aspiring chef.

The popularity of food trucks has only grown. Despite a global pandemic in 2020, the industry has consistently grown in the last five years. By 2028, Grand View Research anticipates the industry will be worth at least $6.6 billion. 

Chefs with entrepreneurial spirit or restaurateurs without much startup capital may find a food truck a great option. On average, opening a brick-and-mortar restaurant costs three times as much as starting a food truck business. Serving culinary delights out of a mobile kitchen also gives you more versatility in your location. 

Food truck owners face unique opportunities and obstacles while perfecting recipes and finding loyal customers. But while navigating a growing food truck business, it’s vital not to forget important steps like applying for a business license or filing and paying taxes. From ideas for avoiding delays to finding overlooked deductions, here are a few tax tips to consider. 

#1 - Protect your business

In many places around the country, you’ll be required to purchase business insurance for your food truck. Regulations can vary by location, so check with local jurisdictions. There are four types of insurance many food truck owners are required to carry:

Commercial vehicle insurance

This damage and liability coverage is often required for a vehicle used in business. A personal auto policy usually has restrictions that won’t cover a commercial vehicle.

General liability

Most states require a liability policy as part of the license application process for your food truck. It covers unintentional damage or injury caused by your business.

Property insurance

This coverage may not always be required, but it’s a good idea. It can help you recover after losing your truck or equipment from an accident or theft.

Workers’ Compensation

You’ll probably be required to carry this insurance if you have any employees. This policy will cover any employees who are injured on the job. It will often provide for medical bills and lost wages. 

Insurance can be a significant expense. However, when it’s time to file your taxes, insurance premiums may qualify as tax deductions. It’s worth it to see if your insurance costs can save you on your tax bill. 

#2 – Itemize the wear and tear 

Operating a food truck may have less overhead than a restaurant in a building. However, there are still expenses, particularly vehicle-related expenses. Food truck owners can either deduct vehicle-related expenses or the standard mileage rate: 

Vehicle-related expenses

With this option, you can deduct expenses like tire and oil changes, the cost of fuel, and parking expenses.

Mileage

If you’re deducting the mileage driven for business, you’ll want to track the number of miles. Then you’ll deduct the standard mileage rate.

Whichever option you choose, track your expenses diligently. The best practice is to keep thorough records of the costs you plan to claim as deductions. This will help you back up any claims with receipts, invoices, and clear ledgers. 

Keeping records may also open the door for other tax deductions. Other expenses, like the depreciating value of your large equipment, may also be deductible. Accurate logs of supplies, paper products, and the food and beverages you sell can save you money. All of these are usually tax deductible. 

#3 – Remember the sales tax 

Only four states don’t have sales tax: Delaware, Montana, New Hampshire, and Oregon. The 46 states that collect sales tax do so in their own way. Alaska, for example, doesn’t have a statewide sales tax. However, local authorities are allowed to impose a sales tax.  

Generally, states with some sales tax consider food sold from a food truck to be fully taxable. This means you’ll be responsible for collecting a remitting sales tax to the proper authority. In most cases, you’ll simply charge sales tax at the point of sale and at the rate of the location where you sold the food. However, you should check local regulations.

Managing sales tax can feel like a major inconvenience. This is especially true for food truck owners who move between jurisdictions. Some may travel to other states for fairs or spend part of the year in a different part of the country. However, the headaches of not collecting sales tax properly can be worse. If you over-collect, you must remit overages to the state or refund customers. If you under-collect, you could be responsible for paying the difference.

When you register your food truck business with a state or local authority, you’ll periodically receive notices about local and state tax rules and rates. These notices may be more frequent in areas with variable local taxes. No matter how often these notices arrive, avoid the urge to skim or ignore them. You’ll want to charge the exact rate for your food truck sales tax to avoid any overages or under-charges.

#4 - Don’t delay

Taxes can be stressful. That doesn’t mean you have to let the complicated jargon weigh you down. Some of the best tax advice is to start early and revisit your accounting often. Don’t procrastinate and let managing your taxes snowball into an overwhelming task.

Instead, build small bursts of accounting-focused time into your routine. Be sure you’re tracking expenses and logging your cash flow in and out of your business. Some tools can help. Simple apps can track your mileage to make it easy for a year-end deduction. Similarly, platforms like ComplYant can keep you up-to-date with deadlines and tax obligations customized based on your business.

The best advice is to find what works for you and be consistent. You don’t want to let a tax deadline or filing date slip by. There are enough unexpected challenges that can arise while running your business. Staying in control of your books and your taxes is a great way to keep some advantage on your side.

Never miss a deadline

If you’re unsure where to begin, check out our other available resources. Our webinars, Make it Easier: Tax & Legal Building Blocks for Entrepreneurs and Does Your Small Business Owe Estimated Tax, are great places to start. 

You’ll also want to make sure your business has all your other filings in order. For example, before you can actually even begin operating your business, you have to ask the municipal where you want to operate your business and sell goods for permission.

Outside of filing your articles of incorporation in the state you’re formed in, you have to acquire a business license (sometimes called a business tax certificate, among other things) along with other permits, such as a health inspector permit, to legally and safely operate your business. These licenses often have to be renewed regularly. Make sure you check with your local authorities regarding the business licenses and other permits you need. 

When you’re on the go and cooking up something great, keeping track of these obligations can easily become a lot to manage. With ComplYant, though, you can easily stay up-to-date with your tax and business license deadlines. Sign up for a free account today.