Get to know these credits and deductions.
After the holidays, it’s time for a different sort of giving: to your needy relative, Uncle Sam. Here are 10 credits and deductions that restaurant tax pros use to ease the pain.
Work opportunity credit. Hire a member of a disadvantaged group, like a veteran, an ex-felon, at-risk teen or welfare parent, and take up to $4,800 off your income tax. Be sure to file papers with your state job agency before the employee starts work—or you lose the credit.
FICA tip credit. The bad news: You must pay Social Security (FICA) tax on server tips. The good news: If tips raise their income above the federal minimum wage, you can get back whatever you’ve paid on earnings over $5.15 an hour. As a favor to small business, Congress is holding that threshold at $5.15 while it raises the minimum wage.
Empowerment zone. If a restaurant in an empowerment zone hires a resident of the zone, it can take 20 percent of the salary off the top of its income tax, maxing out at $3,000. You can check addresses at www.hud.gov/crlocator.
Cost segregation. You have to write down your building over 39 years. But non-structural improvements can depreciate faster, like the pipes and wiring that run stoves and refrigerators. A professional cost segregation study will tell you which assets you can write down over five to 15 years. You can even claim a refund on taxes you paid last year.
New equipment. Instead of writing it off over five years, like most tangible personal property, you can deduct up to $125,000 right away, a so-called Section 179 deduction. But you must have enough income to cover the deduction.
Startup costs. From the second restaurant on, you can deduct pre-opening expenses right away, as long as the new eatery is part of your existing company.
Gain from your losses. If you’re a limited liability company instead of a corporation, you can deduct a restaurant’s losses on your personal income tax return, against your other sources of income.
Gift certificates. One eatery used this trick to cut its income by $300,000. When someone buys a certificate, you don’t have to report it as income until it’s used. If it’s not redeemed, you can defer the income for up to two years.
Prepay expenses. Having a great year? Cut your income by pre-paying some of your expenses for next year.
Retirement plan. Already have one? Set up another at work, and deduct what the company pays in. You’ll just have to offer it to managers and those who’ve been on the job at least a year, too.