Tax Season 2018 is rushing toward its final weeks to file. Virtually every business owner is preparing to file. And in the middle of it all, here comes a big holiday time for the restaurant industry. Indeed, we all cope with Tax filing. But, the restaurateurs also must cope with the new spring menus and upcoming holiday feasts.
It was February when we last featured tax and accounting topics for the Restaurant industry. The restaurant business is one of our favorite New York business niches. In fact the “Restaurant Wars” are our favorite part of the popular cooking show, “Top Chef.” In case you are unfamiliar with it, the television show features two teams of chefs. They compete and not only in cooking. Additionally, they compete in setting up, decorating, staffing and then running a pop-up restaurant with as much real detail as possible.
Tax Season 2018, Filing Taxes, and Your Restaurant Takes More than a Top Chef
The judges are always surprised at how much the chefs must learn about the business and day to day operation of a restaurant. We, like accounting and tax experts, see restaurant wars, in reality, every day. It’s not cute, funny or poignant as it is on the TV show. It’s real life. And, it’s jobs for families. Then, it’s dollars and cents. But we are here to help restaurateurs gain the real prize. And the real prize is survival of Tax Season 2018.
Gavrilov & Co has been helping restaurant owners understand the world of taxes, accounting and payroll procedures for a quarter of a decade. We think it’s important once again to highlight some of the current tax issues facing the restaurant-owning niche at this critical tax time.
Tax Season 2018 and a Little Backstory for your Eatery
We celebrated Valentine’s Day by introducing some general income tax concepts that restaurant owners must know in advance of tax filing. Now that it is time to file. Therefore, owners and operators would greatly benefit by taking another look at that fact-packed article, “Restaurant Taxes Demystified: Hot, Fresh Tips.”
The article opens with the main point of “Tax Entity.”
Tax Season 2018: What’s Your Entity?
RSM Tax Partner Matt Talcoff says, “With the right planning, operators can take advantage of key provisions of the Tax Cuts and Jobs Act” (TCJA.) He follows through by explaining a tax issue that has caused quite a few restaurant owners to wonder what type of tax entity they are, or they could be. Find out more about your entity and see why your friends might be hastily transforming their restaurants into C corporations.
A Note on a Gift of the TCJA and Tax Season 2018, to Your Café: The Bonus Depreciation Provision
Likewise, in that blog, you will discover the secrets of the TCJA’s Bonus Depreciation Provision. “It’s a bonus depreciation provision and it allows you to immediately write off 100 percent of the cost of equipment. Within that same set of provisions, Used or new equipment will qualify, as long as you bought it after Sept. 27, 2017.” At first blush, this might sound like a wonderful idea to you. However, seek professional tax advice before taking the plunge.
Cautionary Note Number 1:
Talk to your tax professional because some states will work under the old rules. Only your tax professional knows for sure.” Once you see the details in our article, keep in mind that our tax squad awaits you with professional help and advice in studying your individual restaurant tax situation. Only qualified tax experts should help you navigate the right way to deduct your restaurant asset purchases. Here at Gavrilov & Co, we’ll look at your individual tax situation and assist you in choosing the most profitable way to deduct your asset purchases.
Cautionary Note Number 2:
For example, as we stated in February, “You may find your restaurant is better off balancing expensing between the bonus-depreciation provision and the Internal Revenue Code’s Section 179 expensing.” The latter also “expands under the TCJA.” Again, please get the details in our introductory article, Restaurant Taxes Demystified: Hot, Fresh Tips
Take A Run at the Tax Code: Section 179 Cooks up Money
If you have not been there already, Gavrilov & Co suggest you pay a little visit to the IRS online resource. You’ll find Section 179 allows taxpayers to deduct the cost of “certain property as an expense when the property is placed in service.” Your restaurant might be such a property. Check out the latest information on this site. Then, talk to your tax professional. You will really have something solid to discuss concerning your tax season 2018.
Another Restaurant Issue Critical to your 2019 Taxes: Tips
We have also previously brought you some blog articles concerning tipping, which is a large part of the restaurant industry. There’s no doubt you will want to update your understanding of tip regulations and taxes. You need to be in the know about those laws which pertain not only to your business but also to your employees, and tip reporting.
Service Charges? Tips? Who knows the difference? Who needs to know about them? You, as a restaurant owner, do! Can we just lump tips and service charges altogether for taxes? Never! Find out all about it for Tax Season 2019 in our informative article, Service Charges, Tips and Taxes, Demystified.
Owning a Restaurant: More than Menus, Décor, and Service
You might have guessed we believe you need business knowledge beyond the food and front-of-house to maintain a successful restaurant. You need to know a little accounting also. So today, we begin a bring you Part I of your edible accounting lessons. In other words, we present your most basic accounting need-to-know terminology for the restaurant business. Needless to say, this is only Part I.
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Your Number One Accounting (and tax) Term: COGS
When we speak of the Cost of Goods Sold or COGs in the food industry, we are speaking of the cost of the food and beverage products you sell in your restaurant.
Cost of Goods Sold (COGs) is often the largest expense on a profit and loss statement. We’re giving you a special easy equation for determining your COGs:
Beginning Inventory + Purchases – Ending Inventory.
Now we do not wish to offend any chefs. So, we agree making beautiful and delicious food is a primary goal for any restaurant owner. But we want you to be aware that making a profit is “the most important goal for any restaurant owner or manager.”
If you always know your COGs in relation to the revenue you are bringing in, you can always accomplish three objectives:
- Control your costs.
- Make sure you are putting the most to your bottom line.
- Running a profitable business.
In other words, this simple term includes all you need to win the real-life “restaurant wars,” and stay in business beyond Tax Season 2018.
#2 A Second But Equally Important Term: OPERATIONAL PAYROLL
So Number One referred to your Product. And now, we have a term that refers to your People, “Operational Payroll.”
This term means the part of the payroll over which you have the most control. This term encompasses all hourly and tipped positions that make up both the front of house and back of house employees.
Taking A Bite Out of a Labor Intensive Industry
Working in the restaurant business, you know, it is one of the topmost labor-intensive industries out there. Then, you must count labor as one of the biggest is line items on your balance sheet. Controlling your labor expenses will help you increase profit. You will have to become a master of the clock and calendar.
- Adjusting weekly schedules,
- Pro-actively and strictly regulate the clock-ins and clock-outs.
- Know how many employees you have on the clock. And Compare the cost of employees to your daily sales.
Thus “operational payroll” is a less bookish term. And it is more a collection of crucial tasks to lead you to your financial goals.
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Third and Final Accounting Term for Today: GPPC
Gross Profit after Prime Costs (GPPC) is always going to be one of your favorite numbers. This term indicates the “the profit your restaurant makes after deducting the costs associated with making and selling your food and beverage, i.e. Labor and COGs.” As you might have guessed, Gross profit will appear on your income statement. We calculate it according to this formula:
Gross Profit = Revenue – Cost of Goods Sold – Total Labor.
The Significance of GPPC
Gross profit margin is an important starting point for your healthy bottom line net profit.
- With a high gross profit margin, you’re in a better “position to have a strong operating profit margin and strong net income.”
- If you are a new restaurant owner with a new place, obviously, the higher your gross profit margin, the faster you can reach your break-even point. Only at that point can you begin earning profits.
- Everyone always wants to know the ideal percentage. But the Ideal percentage of GPPC will vary according to your specific type of restaurant.
- Still, accountants give you a rule of thumb: You want your GPPC to be 35 percent or higher.
- As you face the 2018 Tax Season, keep in mind that a higher GPPC will ensure that you have the revenue to cover both fixed and variable costs in business operations.
We have six more terms for you in this round-up of a critical vocabulary for restaurant owners. However, we leave them until next week. Then, we will continue in Part II of our series on Tax Season 2019 and winning your Restaurant Wars. Or how to survive in an industry that is as beautiful as it is difficult.
Remember, your Gavrilov tax squad is here for you. The combination of our CPA expertise and a fine POS system integrated with Zero will help you conquer your accounting difficulties. This includes both the essentials for filing your 2018 taxes and on a daily basis. Then you can focus on food and service and leave the numbers to us.