5 Tax Tips for Small Business Owners

Do you enjoy thinking about business taxes? Probably not! And we don’t blame you—especially after another chaotic year for businesses navigating the “new normal.”

That’s why we want to help you out! In this article, we’ll be sharing five end-of-year tax tips for small business owners. Specifically, we’ll be sharing tax tips for small business owners running quick service restaurants. If that’s you, keep reading!

Here’s a quick preview of the tips you’ll learn about:

1. Review your tax requirements
2. Audit your bookkeeping
3. Take advantage of first-year bonus depreciation
4. Check eligibility for tax credits
5. Assess potential tax deductions

And when we’re done going through those tips, we’ll also share some of our favorite end-of-year tax write-offs so that you can keep as much of your annual profits as possible!

5 End-of-Year Tax Tips for Small Businesses

We know tax planning can be complicated and confusing. Here are five tax tips to help make your life easier as you close out the year.

#1 Review Your Tax Requirements

You might already be familiar with the tax requirements for your restaurant. But the end of the year is a good time to review and update yourself on any changes. Here are the key requirements to be aware of:

• As a restaurant owner, you need to pay federal income tax on your business and personal income. Depending on your location, you may also be required to pay state and local taxes.
• You need to pay federal payroll taxes on your employees’ wages to cover things like Medicare and Social Security. 
• You’ll also need to pay state unemployment taxes for your employees. 
• You’ll typically be required to pay the state and/or local government sales and use tax.

#2 Audit Your Bookkeeping

Bookkeeping is essential to any business. By keeping tabs on your profits and expenses, you save yourself time when it comes time to sort your taxes. It can also save you money! How? Tax write-offs!

By filing for tax write-offs (like the ones we share later in this article), you can lower your taxable income. But you’d have a hard time finding the receipts you need to apply for those tax write-offs if you have to frantically go through a pile of papers on your desk.

So, spend some time in these final months of 2021 reviewing and organizing your books. Think ahead by taking notes on which expenses might qualify for tax write-offs. And make digital copies of any physical receipts so that there’s no chance you’ll lose or misplace them.

#3 Take Advantage of First-Year Bonus Depreciation

Thanks to the Tax Cuts and Jobs Act (TCJA), you can get a 100% first-year bonus depreciation on qualified used and new assets (e.g. kitchen appliances) that you purchased and used during 2021. For this reason, you might also want to consider making planned purchases of new assets by December 31 to take full advantage of this bonus depreciation. 

However, note that buildings and their structural components are not eligible. And you have to start using whatever you buy before the end of this year. 

#4 Check Eligibility for Tax Credits

Before the year ends, check to see if your restaurant is eligible for tax credits. What are those? Tax credits are, essentially, rewards for partaking in a business activity that benefits the economy, environment, or any other matter considered important by the government. 

If your business is eligible, tax credits can help you reduce the amount of income tax you have to pay to the federal and state governments. In some cases, you might even get a tax refund if the credit exceeds your tax bill. 

One of the most common tax credits is The Work Opportunity Tax Credit. This tax credit aims to help job seekers that have more difficult barriers in getting a job. If you are a business owner that hires people who usually face barriers to employment (e.g. veterans, ex-felons), you are likely eligible for this tax credit. 

Another tax credit you should know about is the Employee Retention Credit. This refundable tax credit is for businesses that have been impacted by COVID-19. If you have fully or partially suspended your restaurant operations by following government orders and experienced a 50% decline in sales compared to the same quarter in 2019, you should consider applying for this tax credit.

Lastly, you should spend some time to make sure you understand tax deductions (also known as tax write-offs). Any of your expenses that are eligible for tax deductions can help to significantly lower your taxable income. 

#5 Assess Potential Tax Deductions

For example, if you earned $50,000 of income in the calendar year and reported $2,500 of tax-deductible expenses, you’ll only pay taxes on $47,500 of business income.

Doing this at the end of the year will not only save you a lot of time when it comes time to file taxes, but it will also ensure you don’t miss any write-offs that can save you money. Curious about what else you might be able to write off for tax deductions?

10 End-of-Year Tax Write-Offs for Small Business Owners

Tax write-offs are expenses (approved by the IRS) that you can subtract from your taxable income. By filing your tax write-offs you can save money every year. But you have to know what to look for! Here are ten that you should be aware of as you review your books at the end of the year. 

#1 Depreciation

You can write off the cost of your restaurant assets, such as ovens and dishwashers. In previous years, you could only write off a certain percentage. But in 2021 (as we mentioned above in tax tip #3), you can write off 100% of eligible purchases.

#2 Marketing and Advertising Expenses

You can include almost all of your marketing expenses (excluding any political ads) in your tax write-offs. For example, the money you spent on Google pay-per-click ads can be reported as deductible items.

#3 Business Meals

As a restaurant owner, you may occasionally provide meals to your employees. You can deduct up to 50% for food and beverage costs!

#4 Insurance

You probably have different insurance plans for your restaurant. For example, you probably have property insurance, liability insurance, and life insurance for your employees. When filing your taxes, you can deduct the premiums.

#5 Salaries and Benefits

In general, your employees’ salaries and benefits are tax-deductible as long as the employee is not a sole proprietor, a partner, or an LLC member.

#6 Maintenance Expenses

You can also write off maintenance expenses for your business, such as utilities, cleaning services, and structural repairs.

#7 Rental Expenses

If you rent the location of your restaurant, you can deduct the rental payments from your taxable income. On top of that, equipment rental, such as ovens and ice machines, also can be included under this deduction. 

#8 Employee Gifts

Have you ever awarded an employee of the month and given that person a gift as a token of your appreciation? Employee gifts are deductible up to $25 per employee annually.

#9 Software Subscriptions

Cloud-based, software-as-a-service (SaaS) applications can be included in your tax deductions. So, if you have a subscription to a recruiting software like Workstream, you can deduct the costs from your taxable income.

#10 Legal and Professional Fees

Lastly, if you hire a bookkeeper, accountant, and/or lawyer for your restaurant, some of their professional fees are tax-deductible as well!

Final Thoughts

Filing taxes can be confusing and, at times, frustrating. But, by planning ahead, you can save yourself time and your business money! We hope the tax tips and write-offs we’ve shared help you feel confident in your end-of-year tax preparation.

And, if you’re looking for more ways to end the year financially strong, check out our recent article on how to offset rising business costs!