If you own a restaurant in Charlotte, North Carolina, or the surrounding area, the last thing you need to worry about right now is taxes. Yet, even in the face of COVID-19, the taxman still cometh. The IRS imposes very strict regulations on restaurants, and to avoid their ire in the form of an audit and, worse, tax fines and penalties, it behooves you to be aware of them.
While tax audits, in general, are relatively infrequent on a percentage basis, restaurants, in particular, get audited disproportionately. What's more, you may be personally liable for unpaid payroll taxes or sales-and-use taxes your business owes. Therefore, to protect yourself and your business, diligently keep proper, accurate, and complete financial records.
Changes to the Tax Code Affecting Restauranteurs
As of the passage of the Trump administration's 2018 tax plan, several changes to the federal tax code have taken effect that affects restaurant owners.
A new limitation has taken effect for excess business loss deductions, in particular for new business locations. Specifically, you can now claim only $250,000 in total business losses, with unused losses carried forward into subsequent periods. You can also claim only a maximum of 80% of your net operating losses as a deduction, though unused amounts may be carried forward indefinitely.
If your restaurant's operating revenue is greater than $25M, you can only deduct business interest from 30% of income before interest, depreciation, and a 20% deduction, all excesses carried forward.
Restaurants, and other small businesses, can no longer deduct business entertainment expenses, which, in turn, could limit deductions for business meals associated with an entertainment component.
Lastly, note that the temporary 12.5% tax credit available to restaurants that offer their employees family medical leave has now expired and is no longer available for 2020 or subsequent years' filings.
How Restaurants Are Taxed
The IRS taxes restaurants in several ways. How much you pay in taxes for your restaurant depends on your restaurant's profitability, location, size, number of employees, etc. Depending on these factors, you could pay tens of thousands of dollars in taxes in a year for your restaurant. Here are the taxes to be most aware of to keep your restaurant out of the IRS's crosshairs:
- Payroll tax - Including Social Security, Medicare, and unemployment taxes
- Federal income tax - Including business taxes for the restaurant and personal taxes for the owner
- Tax on tips - Only applicable to those making more than $20 in restaurant tips per month
- Healthcare taxes - Optional taxes your local jurisdiction may impose for sale of specific products deemed dangerous, like cigarettes
As a restaurant owner in Charlotte, NC, you must also pay North Carolina state general sales taxes of 4.75% on all food and beverages served and a minimum 7.25% county tax made up of a 2% Mecklenburg county tax and a 0.5% Mecklenburg Co Public Transportation tax. Your exact tax rate will depend on your restaurant's exact location. Beyond these figures, Charlotte has no additional city sales tax.
Tax Deductions for Restaurants
The tax repercussions of owning a restaurant aren't all doom and gloom, however. Here's some good news: as a restaurant owner, you have several tax deductions and advantages available to you. Avail yourself of as many of these as you can to the maximum extent you can to keep more of your restaurant's hard-earned money in its coffers.
Tax deductions for restaurants include:
- Staffing costs, including benefits, bonuses, and employee gifts
- Operating costs
- Marketing and advertising
- Utensils and table items
- Kitchen appliances
- Loan interest
- Capital expenses
- Property rental costs
- Depreciation on owned property
- Insurance costs related to the business, including liability and property insurance
- Property maintenance expenses
The federal government also offers restaurant owners who hire people belonging to particular groups, such as qualifying veterans, a tax credit known as the work opportunity tax credit.
There are many reasons a restaurant owner would want to hire a CPA for small businesses to help with the business's taxes rather than try to do it himself or herself. A small business tax advisor will provide personalized expertise and support, helping determine the best strategy for your unique circumstances. A CPA for small business will know, for example, what alternatives are best for tax positions like inventory, pass-through entities, rental properties, and depreciation.
To hire a small business tax advisor to help with the taxes for your Charlotte, NC business hires only the best CPA Charlotte NC has to offer, and that's Scott Boyar, CPA. Contact Scott at 704-527-2725 and check out his business tax resources online.