Springtime can be a taxing time for small-business owners—maybe even more so for restaurant operators, who deal with a sometimes complex set of tax issues.
Stacy Gilbert, a partner with accounting firm Citrin Cooperman, points out a few items that you may have overlooked while gathering files for your accountant:
Be sure to verify the accuracy of the rate used by your payroll company as the minimum wage in the calculation of the FICA Tip Credit. For this purpose the minimum wage used should be $5.15 per hour. Many payroll companies are erroneously using $7.25 per hour for this calculation.
If you are receiving notices from the Internal Revenue Service that the Social Security Number for your employees does not match their name, there are two internet verification options you can use. Go to www.ssa.gov/employer/ssnv.htm. You may also use these options as part of your hiring process.
Some states require Use Tax to be paid on Promotional or Complimentary Meals and/or Promotional Beverages. This tax is calculated on the cost of the promotional items and is remitted with the company’s sales tax. Your POS system should be designed to capture these items appropriately.
If you are on the accrual basis of accounting, you should consider unredeemed gift cards a liability, not revenue, until the card or certificate is redeemed. This is considered Deferred Income. Unredeemed gift card income may only be deferred up to the last day of the second tax year following the year of sale. After that date the company must recognize the income even if the card has not been redeemed.
- The Internal Revenue Service uses a rule of thumb to calculate the percentage of cash tips as compared to cash sales if the company does not have any support for the amounts reported by the tipped employees. This percentage is generally 2 percent less than the percentage of the actual credit card tips as compared to credit card sales. If your employees are reporting less than this percentage be sure to retain the information submitted by your tipped employees.
Also, if your restaurant employs tipped workers, you may be able to claim a federal income tax credit for the FICA taxes paid on a portion of those tips. The so-called 45(B) credit applies to all restaurants, with some exceptions. According to the National Restaurant Association, the following conditions apply:
You must owe federal income taxes to claim the credit. Because you can use the 45(B) credit only to the extent your company owes federal income taxes, there may be some restaurateurs who cannot take advantage of the credit. This would include operators who break even or lose money, and thus have no taxable income. However, with some limitations even operators without federal income tax liability in a particular year may carry the credit back or forward to a year in which they owed, or will owe, federal income taxes.
You may not claim both a credit and deduction. Restaurateurs who take the 45(B) credit may not deduct those same FICA taxes as a business expense.
- Businesses that file under the Alternative Minimum Tax (AMT) system typically are not able to take advantage of most tax credits and deductions. However, Congress included in its 2007 minimum wage bill a provision to allow both individual and corporate AMT filers to use any or all of the 45(B) tax credit to offset their AMT liability.