We probably all complain about having to pay taxes. That cut in income can be hard to part with, and the paperwork and calculations can be daunting. The time spent trying to understand how to add it all up is usually grudgingly spent. Like individuals, small businesses, and restaurants specifically, have to pay a variety of taxes as well. Staying organized with the business accounting and on top of the income and outcome numbers can make mangers’ and owners’ lives easier and prevent unpleasant surprises when it comes time to pay taxes.
In 2015, the projected restaurant sales are $709.2 billion, according to the National Restaurant association. This number shows how huge the industry is and how much money is poured into it. However, this number unfortunately doesn’t reflect the potential restaurant profits. It doesn’t take into account food costs, other expenses, wages, and, of course, taxes. Defaulting on accounting organization can have damaging effects
on a restaurants business and should always be avoided. Here are some short explanations about restaurant taxes that your business may have to plan for and pay.
Income tax forms and amounts may differ based on how the business is registered. Most restaurants are registered as an S corporation, or pass-through entity, where the owner pays income tax and receives all the losses and profits directly from the business. The debts, profits, and losses from the business essentially pass through to the owner(s). Another option is for the business to be registered as a C corporation. In this case, the business and the shareholders are taxed separately. Most restaurants which aren’t pass-through entities are C corporations, but many prefer to be defined as pass-through entities to avoid double taxation.
Restaurants may have to pay property tax if they own the property on which they are located. Restaurants leasing the venue should make sure to know the details of the contract and be aware of whether or not they should be paying the property taxes. Property taxes are probably the most-forgotten type of restaurant tax in budget planning, since focus is usually placed on sales and profits. Property tax differs in different cities and states, and is usually calculated based on the size of the venue and whether it is registered as a commercial or residential property.
Sales tax also differs per state and sometimes can vary from city to city. It is calculated by defined percentages of the charge to the customer on food, drinks, and merchandise sold in the restaurant. Usually the sales tax is added to the customer’s bill, meaning that the only accounting that must be done is keeping track of the amount received. In other words, sales tax doesn’t have to be taken out of the pool of restaurant profits and is actually independent from it.
Sales tax applies for gift cards as well. Revenue from unclaimed property such as gift cards and paychecks is subject to tax. Therefore, when gift cards remain unclaimed, the restaurant doesn’t simply keep the profits, meaning that those unused gift cards can present a liability for businesses.
Payroll taxes differ from state to state and are typically both withheld from the employee’s salary and then completed by the employer. It consists of multiple components such as Social Security, Medicare, and Unemployment tax.
Taxes on Tips
Sometimes a business must pay taxes on tips, like any other income. According to the IRS, employees in businesses with more than 10 employees working more than 80 hours are required to fill out a form for tip taxes.
Taxes can be complicated and tax laws can be extremely confusing and unclear for the average person to understand. Businesses can simplify their tax paying and calculating process by hiring an accountant or by making sure to stay very organized. Having a to-do list for managerial tasks can help managers and owners visualize and be constantly reminded of the things they must get done. Purchasing useful computer programs to help promote finance organization can also help. And, of course, keeping both digital and hard-copy records of receipts of sales and purchases is crucial. There is no doubt that, at first, the finance side of the business will take getting used to, but investing a lot of time and effort into it at the beginning of a business’s lifetime can help make things easier in the future.