There are a number of tax regulations that affect how restaurant owners and employees must operate. For example, tips that are given for service are typically regarded as income for the waitstaff and other employees. Additionally, there are California restaurant taxes that add another layer of tax liability that you need to keep track of while also running your business. If you or a family member is having difficulty managing taxes associated with the restaurant industry, you should consult with an experienced Sacramento tax lawyer for restaurant owners and workers.
The tax lawyers at the NewPoint Law Group possess decades of legal experience dealing with state and federal taxes associated with the restaurant industry, and we are prepared to use this experience to represent you. Our firm recognizes the importance of staying current on your taxes, and we are here to help you plan a tax strategy that meets your unique goals. To schedule a confidential legal consultation, call the NewPoint Law Group at 1-800 358-0305.
Tip Reporting Requirements for Employees and Employers
If a restaurant employee collects tips while working, these tips must be included in their income. To report this income, you must use Form 4070, titled Employee’s Report of Tips to Employer. When filling out a Form 4070, you must provide the following information:
- Your name, address, and social security number
- Which month you received the tips
- The total amount of tips received
Filing a Form 4070 can be tedious because it must be filed on the 10th day of the month after the month you received your tips. For example, if you received $500 in tips in January, you must report this income on a Form 4070 on the 10th of February. However, if you earn less than $20 in tips for an entire month, you are not required to report that income. Due to the low threshold for filing a Form 4070, you will likely have to file one every month as a restaurant employee.
If you are a restaurant owner, you must collect taxes on tips earned by your employees. Specifically, an employer must extract Social Security and Medicare taxes directly from the tips or the employee’s wages. When reporting income from tips, restaurant employers must file a Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. To determine whether your business is required to pay taxes on tips you must meet all of the following criteria:
- You provide food or beverages that patrons are expected to consume at the restaurant
- You operate in an industry where tipping is customary
- In the prior calendar year, the business employed more than 10 employees on a regular business day, and those employees worked more than 80 hours
It is also important to note that an employer must ensure the total tip income for a pay period is at least 8% of the total receipts for that timeframe. However, you do not have to report all receipts for this time period. For example, if your business also supports carry-out sales, this does not have to be included.
If the tips reported by your employees is below 8% of your total receipts, you must allocate the difference between the reported tips and 8% of the receipt gross. An employer can allocate tip income in three ways:
- Gross Receipt Method
- Hours Worked Method
- Good Faith Agreement
To learn more about reporting tip income, you should speak with an experienced California tax lawyer.
Common Tax Deductions for Restaurant Owners in Sacramento
A tax deduction is a method for lowering the amount of taxable income that you must report on your tax return. A restaurant owner can claim various deductions that will allow them to lower their taxable income:
- The cost of food and beverages purchased for the restaurant
- Kitchen appliances necessary for operating the business
- Property rental expenses
- Gifts made to employees up to $25
- Eating supplies
- Cost of maintenance
- Property depreciation
This is not an exhaustive list. There are many other deductions that you can claim depending on your circumstances.
Additionally, your business could be eligible for a tax deduction under certain circumstances. For example, if you employ military veterans or disabled workers, you may receive a large tax credit.
Our California Restaurant Tax Attorneys Can Help You Manage Your Tax Liability
If you need assistance managing the restaurant taxes for your business, you should contact an experienced California restaurant taxes attorney today. At the NewPoint Law Group, we are devoted to providing you with the legal representation you deserve. Let our firm deal with complex tax regulations so that you can focus on growing your business. To schedule a confidential legal consultation, call the NewPoint Law Group at 1-800 358-0305.