Tax Credits for Restaurants

Are you aware of the tax credits your restaurant may be eligible for? Many restaurant owners are not taking advantage of these tax credits. It is very difficult to run your business and keep up with the complex regulations regarding taxes. Getting help from your tax professional, who is familiar with the hospitality industry and all the deductions, credits and exemptions you are eligible for, is crucial.

 
Tip Credit

You may be able to claim a credit for social security and Medicare taxes paid or incurred by an employer on certain employees’ tips.

You may claim this credit if you meet both of the following conditions:

1. You had employees who received tips from customers for providing, delivering, or serving food or beverages for consumption if tipping of employees for delivering or serving food or beverages is customary.
2. During the tax year, you paid or incurred employer social security and Medicare taxes on those tips.

Generally, the credit equals the amount of employer social security and Medicare taxes (7.65%) paid or incurred by the employer on tips received by the employee.

 
Work Opportunity Tax Credit 

This credit rewards employers for hiring individuals from certain target groups that have historically faced barriers to employment and discrimination in the workplace. You may be able to claim this credit on first- and/or second-year wages you paid to or incurred for these employees during the tax year.

You must ask for and be issued a certification for each employee from the state workforce agency (SWA) of the state in which your business is located. The certification proves the employee is a member of a targeted group. You must either:

• Receive the certification by the day the individual begins work; or
• Complete IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, on or before the day you offer the individual a job and receive the certification on before you claim the credit.

The new hire must fall into one of the following target groups listed below:

• Veteran – five qualifying categories
• Long-Term Unemployed
• Food Stamp Recipient
• Summer Youth
• TANF Recipients
• Designated Community Residents
• Vocational Rehabilitation Referral
• Ex-Felons
• Supplemental Security Income Recipients

The Research and Development Tax Credit

You may be able to take a tax credit up to 13% of eligible spending for new and improved products and processes. 
 
Qualified research must meet four criteria:

1. New or improved products, processes, or software
2. Technological in nature
3. Elimination of uncertainty
4. Process of experimentation

Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent.
 

Smith Schafer is a recognized leader in providing accounting, auditing and consulting services to the hospitality industry since 1971. We have qualified professionals to assist you on identifying and claiming these tax credits.