Learning about tax deductible is a must if you’re becoming an entrepreneur or already have a business. A major key to having an entrepreneur mindset is constantly educating yourself as much as possible regarding the legal and financial aspects of running a business.
If you’re in the midst of starting a bar, restaurant, or other kind of hospitality business, there are many expenses you’ll accumulate to keep operations afloat. For instance, restaurant operations would be impossible to maintain without accumulating numerous restaurant expenses, from wait staff salaries to takeout containers.
The restaurant industry consists of many tax deductibles–and that doesn’t scratch the surface of the hospitality industry. From hotels to country clubs, there are numerous expenses that a business owner will incur on a regular basis.
Before we elaborate on the various expenses one can claim as tax deductibles, let’s define the term.
Tax Deductibles: Definition
The definition of “tax deductibles” refers to the expenses that a taxpayer can deduct from their gross income, which reduces the overall tax they need to pay. Tax deductibles can be applied to both personal and business purposes.
For personal taxes, expenses such as retirement contributions and charitable donations are popular tax deductibles. For businesses, any expenses that contribute to the startup processes and operations of the brand can be deemed as tax deductibles.
Remember that there are slight differences between tax deductibles and items that are tax exempt. Items that you can claim as tax exempt usually have less restrictions. Other deductibles typically require more details and justifications.
Now that we distinguish the difference, read on to learn everything you need to know about tax deductible in the hospitality industry.
Is Rental Equipment Tax Exempt?
If rental equipment is used to conduct business operations, then by law, it should be tax exempt. In the hospitality industry, many tasks and duties require manual labor. However, many hospitality and restaurant tech solutions simplify operations and can reduce the overall labor cost.
Equipment, supplies, and software programs can take up a significant portion of overhead expenses. Bear in mind that without these assets, a business would not be able to provide the products and services that make it profitable. With this in mind, they’re often tax-deductible expenses.
Many restaurant owners opt for equipment rentals for financial reasons. If this is the case for your business, note that rental equipment is a fixed asset that taxpayers can deduct as it depreciates.
Are Services Tax Exempt?
Whether or not services are tax exempt is dependent on a number of factors. Every state and municipality can differ from one to the next. Plus, some services might not be deemed taxable.
On the other hand, Purchasing services from a third-party will likely provide you with another tax deductible. Businesses frequently pay for services from experts in other fields. For instance, every business owner should invest in legal services. It’s also important for small businesses to work alongside professional service providers, such as accountants, marketing strategists, and financial advisors.
Always double-check which line items you can list as tax deductibles. If not, you or your business might run the risk of being audited by the IRS.
Is Food Exempt from Sales Tax?
Restaurants and other types of hospitality businesses can claim the amount of money they invest in ingredients as tax deductibles. However, they are not able to claim food spoilage as an expense. Not only can food waste diminish a business’ profitability, but there are many environmental downsides to it, too.
Tax Deductibles for Restaurant Owners
Upon launching a business, it’s essential to keep up with the expenses you can claim as tax deductions. We recommend keeping a physical or digital file with all of the business’ invoices and receipts. This way, you’ll never forget to claim any deductibles when filing taxes.
Without further ado, here are seven of the most common deductions your hospitality business might acquire before tax season arrives:
1. Advertising Expenses
If you’d like to accomplish restaurant marketing done right, you’ll have to invest some money. Some of the most effective and trackable marketing initiatives are paid advertising efforts and subscription-model resources.
Many hospitality and restaurant marketing expenses consist of the following line items:
2. Driving Examples
The expenses of purchasing a car, getting repairs on a car, and putting gas in a car are all tax deductibles for businesses. For some business owners, a car might be necessary to meet with clients, pickup orders, or drop-off deliveries.
In restaurant businesses, driving services can accumulate if they offer delivery. As long as driving is part of the job, relevant expenses are likely tax deductible.
3. Employee Salaries and Business
Regardless of the kind of business you operate, you need to build a team. Luckily. Employee salaries and benefits can contribute to your tax deductibles.
Here is a handful of popular roles that make up teams in the hospitality industry:
4. Maintenance and Repairs
Facilities and appliances aren’t perfect forever. Every now and then, businesses will have to hire maintenance teams to evaluate and fix various errors. Not only is this vital for operations, but also for the health and safety of others.
Examples of maintenance repair that you can claim as tax deductibles include:
- Plumbing services
- Gas and electric work
- Painting services
- Roof repairs
5. Charity Donations
Consumers and businesses can make a huge difference in the world by donating to charities and nonprofit organizations. Many effective restaurant marketing strategies also encourage hosting fundraising events.
One of the best parts about donations and charity events is that the more of a deductible you generate, the more of a difference you’re making for a great cause. It’s a win-win for both parties, and certainly something to consider.
6. On-Site Equipment
Restaurant equipment consists of some of the most important tools to run a business. Whether a restaurant is high-tech or not, many resources are vital for operations.
Some of the most common tax deductibles in this category are:
- POS hardware
- Kiosk devices
- Vending machines
- Screens and monitors
- Tableside devices
- Cleaning and maintenance equipment
7. In-House Supplies
Supplies in hospitality businesses might not be the most expensive tax deductibles. However, they’re items that are purchased quite frequently. Plus they often provide an extra touch of convenience for customers and staff.
Some of the most frequently purchased supplies in hospitality businesses include:
- To-go containers
- Plastic or paper bags
- Parchment paper, plastic wrap, and aluminum foil
- Disposable dishware, napkins, utensils and glassware
Frequently Asked Questions About Tax Deductibles
Whether you file taxes annually or quarterly, tax deductibles are always part of the equation. As a regular citizen filing for personal reasons or as a business owner, there are various tax deductibles that can reduce the total amount you owe.
It’s always a smart idea to brush up on which expenses (or tax deductibles) apply to you. In fact, learning of these deductibles is one of the best perks of working with a CPA during tax season–aside from the accurate and timely filings, of course. In the meantime, read on to learn more about tax deductibles.
What Are Examples of Tax Deductibles?
Popular examples of tax deductibles include:
- Donations to charities
- College education expenses
- Business expenses
- Contributions to an HSA
- Retirement savings account
What Can I Deduct to Lower My Taxes?
If you’re searching for ways to lower your taxes, consider the following tips:
- Utilize tax credits
- Maximize all of your business expenses (if you have any)
- Donate to your favorite charities and nonprofit organizations
- Save for retirement (plus, you’ll thank yourself later)
- Start a college savings fund if your have children
What Are the Four Most Common Tax Deductions?
The four most common tax deductions are:
- Retirement contributions
- Charity donations
- Mortgage interest deduction
- Interest on college education costs
What Benefits Reduce Taxable Income?
The following benefits can help reduce taxable income:
- Medical and dental benefits
- A 401 k retirement account
- Group-term life insurance
What Are Five Examples of Deductible Expenses?
Five common expenses to help run your business might include:
- Advertising costs
- Employee benefits
- Legal and professional services
- Supplies and equipment
- Rent and utilities