Newburg & Company, LLP has extensive experience working with restaurants throughout the New England area. Since 1984, we have been a resource for restaurants, pubs, cafes, and various businesses within the hospitality industry. We pride ourselves on providing restaurant clients with a proactive approach, helping minimize their tax exposure while providing timely advice and product. In addition, we utilize a team approach to provide our restaurant and hospitality clients with useful restaurant industry information for benchmarking and can assist the management team with generating more user friendly financial reports.
Newburg & Company also has extensive experience in working with restaurant owners helping them achieve success within an often difficult restaurant industry. Our restaurant benchmarking and industry tools help owners formulate sound budgets and insightful data to assist in maximizing cash flow. We have worked with many start-up restaurants to help them formulate business plans, budget for build-out, and ultimately set-up proper accounting controls to maintain profitable operations. Often we assist our restaurant clients with setting up management incentive plans, assist with estate and succession planning, provide valuation expertise for acquisitions, gifting, etc., as well as a variety of other consulting services.
We have a terrific network of resources inclusive of banks, attorneys, investment advisors, payroll, benefits, retirement planning, etc.
Some Important Accounting and Tax Issues Impacting Restaurants:
- Tip Reporting
- Potential Payroll, FICA Tip and other Tax Credit available to Restaurants
- Meals Tax Filings compliance with State and Local Government Agencies
- Depreciation Opportunities (i.e. Qualified Restaurant Property, Qualified Leasehold Improvements)
- Benchmarking and Application of Key Analytics to Restaurant Financial Statements
- Financial Statement Audits, Reviews and Compilations
- Preparation of Federal, State and Local Tax Filings
- Consulting Services
Our philosophy is to ensure that our clients receive quality services in a timely manner. We strive to exceed client expectations by delivering timely deliverables with a two to five week turnaround.
Our knowledge and experience in the restaurant industry allows us to provide accounting and tax services in an efficient manner. We offer extremely competitive pricing along with comprehensive solutions. We will help you avoid delays with proper planning and responsive support during the entire year.
Restaurants and Hospitality – Specific Tax Issues
Restaurants and hospitality businesses have some specific federal taxation issues that we would like to highlight and also encourage you to discuss with us in person. It is easy in the daily rush of running a business to overlook or postpone reviewing tax laws that could, in some cases, generate savings.
Large Food and Beverage Establishments
The IRS has special tip reporting and allocation rules for “large food and beverage establishments.” A large food and beverage establishment is a food or beverage operation where tipping is customary and that normally employed more than 10 employees on a typical business day during the preceding calendar year. Owners of large food or beverage establishments must file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. In some cases, large food and beverage establishments must allocate tips among employees.
All cash tips are included in an employee’s gross income and subject to federal income tax. Cash tips include tips received from customers, charged tips (such as credit and debit card charges) distributed to the employee by his or her employer, and tips received from other employees under any tip-sharing arrangement. An employee must report cash tips to his/her employer on Form 4070 if tips received are $20 or more in a calendar month. This form applies to all employees including those who receive tips directly from guests or indirectly from other employees who share their tips. Employers must collect income tax, employee social security tax, and employee Medicare tax on tips reported by employees.
FICA Tip Credits
All too often, we have seen new restaurant clients that have not taken advantage of previous years tip credits available to them. Typically, the calculation of this report is prepared by your payroll company. If the payroll company does not offer this service, you will need to check with your accountant to assist with the calculation. This credit relates to the Social Security taxes you pay on an employee’s cash tip income which is treated (for tax purposes) as paid by you to the employee. The credit applies with respect to tips received from customers in connection with the provision of food or beverages, regardless of whether the food or beverages are for consumption on or off the premises.
From 2010-2014 the IRS code allowed business owners to use section 179 elections to deduct up to $500,000 in qualifying expenses with a phase-out threshold of $2 million. The Section 179 provision for higher expensing levels has not yet been extended by congress; therefore for 2015 the limit on Section 179 deductions is $25,000. Last year, lawmakers did not extend the Section 179 higher expense levels until December however it appears the higher expense level provision could pass earlier in 2015 giving restaurant operator’s ample time to decide on new purchases. Certain restaurant furniture and equipment such as bar stools; booths, chairs, and HVAC system for kitchens are granted shorter depreciation lives of 5 years that allow for greater deductions to be recognized in earlier years.
Leasehold and Restaurant Property
Through the end of 2014, restaurants could deduct the cost of restaurant-building improvements and new construction over 15-years. This expired after December 31, 2014 and reverted back to 39 years for 2015 and beyond, unless Congress acts. Congress has a history of adding extenders for deprecation but this is uncertain at this time. Currently, there are several bills in Congress to permanently extend the 15-year depreciation benefits for restaurants.
Accelerate the cash flow benefit of depreciation deductions by reviewing the depreciable components of a building. In many cases these cost segregation studies, performed by an integrated team of accountants and engineers, result in the ability to take a large current-year tax deduction for depreciation. This can result in a dramatic cash flow increase thanks to the tax savings. It’s particularly appropriate to do a cost segregation study on buildings purchased or inherited within the past five years. There may be potential write-offs in light of the new Tangible Property regulations
Smallwares are items such as flatware, glassware and dishes — all commonly used in the restaurant and hospitality industry. The IRS has authorized restaurant and tavern owners to use a safe harbor method of accounting for smallwares. Under this safe harbor, restaurants and taverns may deduct the cost of qualified smallwares in the year purchased. Small appliances costing $500 or less are included in the smallwares category. However, there is one important limitation: the safe harbor method does not apply to start-up costs.
As mentioned previously, we have a terrific network of resources in the area of payroll, benefits, retirement planning, insurance, credit card processing, etc., specializing in restaurants, should you require.
We have highlighted only some of the many federal tax laws that impact restaurants and hospitality businesses. Every business is unique with particular tax considerations. Please contact our office so we can set a time to discuss your business in more detail.
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