What tax deductions are available for restaurant owners?
Almost everything you spend to run your restaurant is deductible. The key is knowing which category each expense belongs to and keeping documentation that survives scrutiny.
Cost of goods sold is your biggest deduction. Every ingredient, beverage, and takeout container that goes into serving customers reduces your gross revenue before calculating profit. Proteins, produce, dairy, alcohol, paper goods, napkins. This isn’t technically an expense deduction since it reduces gross revenue directly, but the result is the same. You don’t pay taxes on money spent on product.
Labor costs are fully deductible. Wages, salaries, employer payroll taxes, workers comp, health insurance contributions, and retirement plan contributions. Tips paid out aren’t your expense because that’s customer money passing through, but payroll taxes on reported tips are deductible.
Rent and occupancy costs reduce your tax burden. Monthly rent, utilities, trash pickup, and common area maintenance fees are all deductible in the year you pay them. If you own the building, property taxes and depreciation replace rent as your deduction.
Equipment purchases get deducted but not always immediately. A new walk-in cooler, POS system, or dining room renovation are capital expenses. You either depreciate them over several years or use Section 179 to deduct the full amount in the purchase year. The right choice depends on your overall tax situation, which is why working with Treasure Valley tax professionals who understand restaurants makes a difference.
Smallwares and supplies are deductible when purchased. Plates, glasses, utensils, cleaning products, uniforms, linens. These costs add up faster than most owners realize.
Marketing and advertising expenses count. Your website, social media ads, printed menus, signage, local sponsorships. Paying an agency or freelancer for marketing help is deductible too.
Professional services are deductible. Your accountant, attorney, bookkeeper, equipment repair technicians, and consultants. Anyone you pay who isn’t on payroll.
Credit card processing fees and delivery platform commissions eat into margins significantly. At least those dollars aren’t taxed.
Insurance premiums are deductible. General liability, liquor liability, property insurance, and business interruption coverage all count.
Licenses and permits are deductible. Idaho liquor licenses, health department permits, business licenses, and music licensing fees for BMI and ASCAP. These recurring costs of staying legal add up.
Training costs are often overlooked. Sending staff to food safety courses, bringing in consultants, or paying for certification programs are all legitimate deductions.
Business meals follow specific rules. Taking a vendor to lunch to discuss pricing is 50% deductible. Staff meals during shifts have their own guidelines worth understanding.
What’s not deductible: fines and penalties, personal expenses run through the business, and federal income taxes.
The deductions only work with proper documentation. Use a business bank account and credit card so transactions are trackable. Categorize expenses correctly in your restaurant accounting so your tax preparer isn’t guessing what charges were for.
Most restaurant owners leave money on the table not because deductions don’t exist but because they weren’t tracked properly throughout the year.
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