Apple Growth Partners

Year-End Tax Planning Tips for Restaurants

Happy business owner hanging an open sign at a cafe

By Dirk Ahlbeck, CPA

As another year of unpredictability ends for restaurants and wineries, now is the ideal time for year-end tax planning and preparation ahead of 2022.

Year-end planning has several goals, including identifying opportunities for assistance and strategizing for new challenges facing the industry.

Here are key considerations for all restaurant owners to discuss with their accounting and business advisory team:

Plan for Government Assistance and Taxability/Nontaxability

Restaurant and winery owners should review government assistance programs to identify eligibility or next steps based on previously received assistance available in the state of operations. Owners should review the following with an accountant:

  1. Paycheck Protection Program (PPP)
    • PPP is treated as tax-exempt income
  2. Employee Retention Tax Credit (ERTC)
    • Funds received from the RRF are not treated as taxable income
    • Recipients have until March 11, 2023, to use funds
  3. Restaurant Revitalization Fund (RRF)
  4. State/Local Grants
  5. Take advantage of Qualified Business Income Deduction
    • Eligible for self-employed and small business owners to deduct 20% of qualified business income

The government assistance programs listed may result in a higher cash balance in the bank than net income reported on tax returns, which should be discussed with the business’s accountant.

In addition to reviewing, owners should prioritize tax planning needed to maximize the benefit of each government program.

New Challenges Facing the Restaurant Industry

Restaurants are also facing increasing costs of labor and commodity (food and beverage) changes and should discuss whether the eatery needs to adjust menu pricing to meet the demands.

Changes Prompted by the Ongoing Covid-19 Pandemic

For nearly two years, the food industry has been at the front line of changes impacted by the ongoing Covid-19 pandemic, ranging from indoor dining restrictions to fluctuations in diner volume. Navigating the restrictions by either designing or increasing outdoor seating, or establishing a robust take-out strategy, may have initially been short-term solutions now transitioning into long-term staples. Restaurants may also begin to see diners return to indoor seating and holiday parties resuming. Worth noting again is the growing costs of labor and supplies facing industries across the board, not just restaurants, including an increase in pay for employees. Owners can discuss strategies for financial improvement based on situations within the restaurant’s location for specific scenarios.

Start Building a Tax Plan for Year-End

Restaurant owners should begin gathering important reports to generate a forecast of opportunities in 2022, including:

  • Clean up the restaurant’s balance sheet
    • Factors include inventory, fixed assets (capital improvements – expensed through bonus depreciation or spread over several years), accruals accuracy, correct loan balances, and support for all accounts.
  • Income Statement
    • This step should include accelerated expenses, such as employee bonuses in 2021 and missing deductions incurred but not deducted, for example, paid by the owner personally to be reimbursed and reimbursable expenses incurred by employees.
    • Restaurant owners can also review retirement planning, with a recommended IRA at a minimum.
    • Year-end planning should be the time to distribute income to owners and investors.

Year-end may be busy with holiday dining volume, but it’s the ideal time to review the restaurant’s performance with its accountant to minimize surprises come tax time. A key goal of year-end planning is to maximize non-taxable income between government programs while monitoring financial statements to maintain margins. Contact Dirk Ahlbeck, CPA, national restaurant practice lead with Apple Growth Partners, to review opportunities for restaurants, wineries, breweries, and eateries.



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