The Tax Forms You Need to File for Your New Restaurant

Opening your own restaurant soon? Congratulations! The foodie culture is at an all-time high. When done right, you could be having a highly profitable business.

But of course, just like any other business, one of the most important things that you should pay attention to are the taxes you need to file and settle. Failure to file taxes or consistently filing late can have a terrible impact on your business, from hefty penalties to suspension and legal charges.

Some restaurant tax forms are similar with other retail businesses. But there are certain tax forms that are exclusive to companies offering food and hospitality services.

Taxes could mean another expense for your business. But they are critical for your business to survive. Payment could be more difficult for those who have bad credit. Thankfully, online personal loans for bad credit are available for people who need financing assistance to settle their business taxes.

Below is the list of tax forms that you need to file for your startup restaurant.

Form 941 – Employer’s Quarterly Tax Form

This form is used by employers to report federal withholdings from their employees. It contains essential information like employment taxes taken from the employee’s compensation and the amount owed to the IRS. It also reports the number of employees, and Medicare and Social Security withholdings. The Form 941 is applicable to all businesses that withhold taxes from their employees. If you have workers or staff who only work on a seasonal basis, they need not be included in the tax form unless they worked during that quarter. This form has to be filed by the end of April, July, October and January.

Form 944 – Employer’s ANNUAL Federal Tax Return

If Medicare, social security, and withheld federal income tax liability is less than $1,000, you don’t have to pay taxes every quarter but only once a year. This tax rule is relatively new, having been announced only in 2007. Usually, businesses with paid wages amounting to $4,100 fall into this category. If you’re eligible, you can register and file it online. The Form 944 has to be filed at the end of January for the previous year.

W 9: Request for Taxpayer Identification Number and Certification

This form is meant to secure the tax identification numbers of your employees. Make sure that you are able to verify all of the information from your staff, including their address so their personal income taxes are processed smoothly.

Form 8027 – Employer’s Annual Information Return of Tip Income and Allocated Tips

Specifically designed for businesses in the food industry, this tax form is used to report receipts and tips and determine allocated tips for tipped employees. This is an essential record keeping document that will help you avoid disputes with the IRS concerning your tipped income. Not all food establishments are required to file this tax. The ones required are those large-scale restaurants that make tipping customary. If you have 10 or fewer employees, you are exempted from this tax.

There might be other tax forms that you need to fill out and file before the IRS, depending on where your restaurant is situated. Remember that cities and states have varying tax requirements. It is a great idea to work with a tax advisor or consultant to ensure that you’re not missing out on anything.

Tax Tips and Deductions

You might be overwhelmed with so many tax policies that cover restaurant businesses. But don’t worry, there are ways to lessen the cost and get deductions.

•Food and beverage costs are deductible. You can even account indirect costs like those of oil and condiments, as well as spoiled, wasted or discarded food.
•You can maximize your tax savings by deducting costs of your recently purchased equipment. You can deduct it in the year in which it was purchased or in smaller amounts over several years.
•If you offer great perks and compensation benefits to your employees, you could also get a deduction from IRS. If you offer free meals to your staff, those are deductible too.
•You can also deduct your transportation costs (mileage) and the actual expenses you incur for driving to and from your restaurant.
•Check if you qualify for Work Opportunity Tax Credit (WOTC). If you hire employees from “targeted groups” such as veterans, former felons, and PWD, you may also qualify for deductions.
•If you donated to charitable institutions, you can also get deductions, particularly on the cost of food.
•You can also get tax savings for remodeling your restaurant if it considered “ordinary and necessary”.

The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment.

WOTC joins other workforce programs that incentivize workplace diversity and facilitate access to good jobs for American workers.

The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) retroactively allows eligible employers to claim the Work Opportunity Tax Credit (WOTC) for all targeted group employee categories that were in effect prior to the enactment of the PATH Act, if the individual began or begins work for the employer after December 31, 2014 and before January 1, 2021. For tax-exempt employers, the PATH Act retroactively allows them to claim the WOTC for qualified veterans who begin work for the employer after December 31, 2014 and before January 1, 2021. The PATH Act also added a new targeted group category to include qualified long-term unemployment recipients.

Targeted Groups

Employers can hire eligible employees from the following target groups for WOTC.

Pre-screening and Certification

An employer must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work.

Employers should contact their individual state workforce agency with any specific processing questions for Forms 8850.

Limitations on the Credits

The credit is limited to the amount of the business income tax liability or social security tax owed.

A taxable business may apply the credit against its business income tax liability, and the normal carry-back and carry-forward rules apply. See the instructions for Form 3800, General Business Credit, for more details.

For qualified tax-exempt organizations, the credit is limited to the amount of employer social security tax owed on wages paid to all employees for the period the credit is claimed.

Claiming the Credit

Qualified tax-exempt organizations will claim the credit on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, as a credit against the employer’s share of Social Security tax. The credit will not affect the employer’s Social Security tax liability reported on the organization’s employment tax return.

Taxable Employers

After the required certification is secured, taxable employers claim the tax credit as a general business credit on Form 3800 against their income tax by filing the following:

Form 5884 (with instructions)
Form 3800 (with instructions)
Your business’s related income tax return and instructions (i.e., Forms 1040 or 1040-SR, 1041, 1120, etc.)

Tax-exempt Employers

Qualified tax-exempt organizations described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may claim the credit for qualified veterans who begin work on or after December 31, 2014, and before January 1, 2021.

After the required certification (Form 8850) is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.

File Form 5884-C after filing the related employment tax return for the period that the credit is claimed. The IRS recommends that qualified tax-exempt employers do not reduce their required deposits in anticipation of any credit. The credit will not affect the employer’s Social Security tax liability reported on the organization’s employment tax return.

In Closing

For the smooth running of your business, paying your tax dues before the IRS is essential. Hopefully, this article has given you adequate information about the tax requirements and necessary tax forms for startup restaurants and how you can maximize your tax savings.