Tax Regulations

If you own or operate a restaurant, you may be eligible for a tax deduction that can help you save money on your equipment purchases. You have the option to expense the cost of property used in a trade or business in the year you start using it, instead of depreciating it over multiple years. This can reduce your taxable income in the year of purchase and increase your cash flow.

The types of property that qualify for the Section 179 expense election include tangible personal property, certain other tangible property (excluding buildings), single-purpose agricultural (livestock) or horticultural structures, storage facilities (excluding buildings), off-the-shelf computer software, and qualified real property.

What Is Qualifying Property?

Qualifying property for Section 179 includes tangible personal property that is used more than 50% of the time in your restaurant business. This may include:

• kitchen equipment, such as stoves, ovens, refrigerators, freezers, dishwashers, etc.,
• furniture and fixtures, such as tables, chairs, booths, counters, etc.,
• computers and software, such as point-of-sale systems, accounting software, etc.,
• security systems, such as cameras, alarms, locks, etc.

There are some limitations and exceptions to Section 179. In general, you cannot use section 179 expense election for the cost of land, buildings, or improvements to buildings, with some exceptions. Restaurants can definetely benefit from these exceptions. Check Publication 946 for when cost related to real property can be expensed using section 179 election. Additionally, there are a dollar limit and a business income limit that may reduce or eliminate your deduction. These limits apply to each taxpayer, not to each business.

What Is The Dollar Limit?

The dollar limit is the maximum amount you can deduct under Section 179 for the year. For tax year 2023, the dollar limit is $1,160,000. This means that you can deduct up to $1,160,000 of qualifying property that you placed in service in 2023. However, there is also an investment limit because the dollar limit is reduced by the amount of qualifying property that exceeds $2,890,000. This means that if you place more than $2,890,000 of qualifying property in service in 2023, your Section 179 deduction will be phased out.

For example, suppose you place $3,000,000 of qualifying property in service in 2023. Your dollar limit will be reduced by $110,000 ($3,000,000 – $2,890,000), resulting in a Section 179 deduction of $1,050,000 ($1,160,000 – $110,000).

What Is the Business Income Limit?

The business income limit is another restriction that may affect your Section 179 deduction. This limit requires that Section 179 deduction, after applying the dollar limit, cannot exceed the taxpayer’s business income. This means that you cannot use Section 179 to create or increase a net loss for tax purposes. This business income limit can have intricate calculations depending on your specific tax situation, but you can see more about these rules in Publication 946.

How Do I Claim Section 179?

To claim Section 179, you must complete part I of Form 4562, Depreciation and Amortization, and attach it to your tax return whether or not you file it timely.

What Are the Benefits of Section 179?

Section 179 can provide significant tax savings for restaurant owners who invest in new or used equipment for their business. By deducting the cost of qualifying property in the year of purchase, you can lower your taxable income and reduce your tax liability. This can also improve your cash flow and free up funds for other business expenses or investments.

Section 179 can also simplify your recordkeeping and tax reporting by eliminating the need to track depreciation for each property over several years. This can save you time and hassle when preparing your tax return. However, make sure you keep track of your assets for which you claimed Section 179 and their business usage, especially that there are some Section 179 recapture rules that you need to be aware of and you can find by clicking here.

Conclusion

Section 179 is a valuable tax deduction that can help restaurant owners save money on their equipment purchases. However, it is not a one-size-fits-all solution and may not be suitable for everyone. Section 179 may not always be the best option for every restaurant owner. Before electing Section 179, you should consult with a tax professional who can advise you on the best strategy for your specific situation.

That is why we are here, to help our business clients use the most tax efficient strategy. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

If you purchased or you are considering the acquisition of a qualified commercial vehicle, or if such a purchase is in your future plans, this article is for you. In case you own a business or a tax exempt organization and you are looking for a way to save money on your taxes, you may want to consider the qualified commercial vehicle credit, a tax credit of up to $40,000. A qualified commercial vehicle is a vehicle that meets certain criteria and is used for business purposes.

Amount Of The Credit

The credit is calculated as the lesser of:

• 15% of you basis (or 30% if the vehicle doesn’t run on gas or diesel),
• the incremental cost of the vehicle.

However, there’s a limit to how much credit you can get. If the vehicle’s gross weight is less than 14,000 pounds, the maximum credit is $7,500. For all other vehicles, the maximum credit is $40,000.

What Is A Qualified Commercial Vehicle?

A qualified commercial vehicle is a vehicle that:

• it is subject to depreciation allowance, with the exception of tax-exempt organizations and it is not subject to a lease,
• it is acquired for use in your trade or business, not for resale,
• it is primarily used in US,
• it must be manufactured by a company that is recognized as a qualified manufacturer according to IRC 30D(d)(1)(C),
• the vehicle should not have been previously allowed a credit under sections 30D (the new clean vehicle credit) or 45W (the commercial clean vehicle credit),
• it is considered a motor vehicle under title II of the Clean Air Act and is mainly used on public roads (excluding vehicles that only operate on rails),
• it is mobile machinery as defined in IRC 4053(8), including vehicles not designed to transport a load over a public highway,
• finally, the vehicle or machinery must be one of the following:
  • a plug-in electric vehicle that gets significant power from an electric motor with a battery capacity of at least:
    • 7 kilowatt hours if the gross vehicle weight rating (GVWR) is under 14,000 pounds,
    • 15 kilowatt hours if the GVWR is 14,000 pounds or more.
• a fuel cell motor vehicle that meets the requirements of IRC 30B(b)(3)(A) and (B).

For example qualified commercial vehicles include vans, pickups, SUVs and trucks.

How to Claim The Credit On Your Tax Return?

For businesses the credit is nonrefundable, which means that if the credit exceeds your tax liability, you can not get the excess amount as a refund. On the other hand, there is no limit on the number of credits your business can claim and you can carry over the credit as a general business credit.

To claim the credit, you need to file Form 8936-A, Qualified Commercial Clean Vehicle Credit, with your tax return. For each vehicle that qualifies for the credit, you should use a separate Schedule 1 (Form 8936-A) to determine the credit amount.

Meanwhile, you can find more information and instructions on the IRS website.

Depreciable Basis

When you set up your asset for depreciation, make sure that you reduce the vehicle depreciable basis by the amount of the commercial clean vehicle credit you receive.

Qualified Commercial Vehicle Credit VS Clean Vehicle Credit

These credits are both tax incentives offered by the IRS to promote the use of environmentally friendly vehicles. However, they have different requirements.

The Qualified Commercial Vehicle Credit is for businesses and tax-exempt organizations that purchase qualified commercial clean vehicles. On the other hand, the Clean Vehicle Credit is available to individuals and businesses that purchase new, qualified plug-in electric vehicles or fuel cell vehicles. To find out more about the Clean Vehicle Credit, you can read our article here.

We advise you to consult with a tax professional for more specific information about these credits and how they may apply to your situation.

Conclusion

In conclusion, purchasing a qualified commercial vehicle can be a smart move for your business and your taxes. You can save money on your tax bill by claiming a credit. If you are interested in buying a qualified commercial vehicle, make sure to consult with your tax professional and check the IRS website for the latest updates and requirements.

Taxes are complicated, especially if you have a business. If you need help with your business books, tax planning and filing your taxes, we are here to help. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

If you are earning money from a side job, a small business, or by selling items online, it is important to report your gross income correctly. If you make more than $600 in a year through payment apps or online marketplaces, you could receive a Form 1099-K. This form is typically sent to you and the IRS by January 31^st the following year.

Taxable and Nontaxable

Keep in mind that all income, regardless of the amount, is subject to tax unless the tax law specifically exempts it. This is applicable even if you don’t receive a Form 1099-K. You will need to report as income, the profit you make from your activities. The Form 1099-K shows the total amount of payments you received (gross income). You can use this form, along with other records, to calculate the actual taxes you owe on your profits.

What Should You Not Report on Form 1099-K

You should not report money received from friends or family as a gift on Form 1099-K. Similarly, reimbursements for personal expenses should also not be reported on this form. This includes shared costs for things like car rides or meals, money received for birthday or holiday gifts, or repayments for household bills from a roommate. These are not taxable income. It’s important to mark these payments as non-business in payment apps whenever possible.

Personal Items Sold

If you’ve received payments for personal items you’ve sold through a payment app or online marketplace, you might receive a Form 1099-K. Personal items can be anything you used personally, like a car, fridge, furniture, stereo, jewelry, or silverware.

The way you report these payments on your tax return depends on whether you made a profit or a loss from the sale. If you sold various personal items and some were at a loss and others at a gain, you should report them separately. You can see how to report the gain or losses from personal items sold here.

Avoid IRS Notices

You should total the amounts on all the 1099-k forms you received and check that the total gross income you report on your tax return is not less than your total 1099-K forms for that respective tax year, otherwise you are going to receive an IRS notice. There are two possible issues that could cause your gross income to be less than the total on your 1099-K forms:

• one or more 1099-K forms might be incorrect , in which case you should request a corrected form from the issuer,
• there are errors in your accounting of gross income, in which case you should review your bank reconciliations, you should make sure you do not report net amounts instead of gross amounts, check that you account for outstanding deposits and that you considered all the bank accounts in which you received payments.

Recordkeeping

Maintaining accurate records is important for tax filing. Remember to document all expenses, sales, and payments received for services throughout the year. You must separate business and personal transactions to be able to calculate your potential tax liabilities.

You can found more information about the Form 1099-K on the IRS website.

In the meantime, if you encounter any issues or have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

What Are The 1099 Forms?

1099 forms are a type of information return that the IRS requires certain payers to file to report payments made to non-employees. There are different types of 1099 forms, depending on the nature of the payment. For example:

• 1099-NEC: reports nonemployee compensation of $600 or more, such as:
  • fees, commissions, prizes, awards, or other payments for services performed by independent contractors,
• 1099-MISC: reports miscellaneous income; if you’re running a business the most common situations in which you need to prepare 1099-MISC are when you made payments for:
  • royalties,
  • rents,
  • prizes and awards,
  • other income payments,
  • gross proceeds paid to an attorney.
• 1099-K: reports payment card and third-party network transactions, such as payments made through PayPal, Venmo, Stripe, or other online platforms,
• 1099-INT: reports interest income, such as interest paid by banks, credit unions, or other financial institutions,
• 1099-DIV: reports dividends and distributions, such as dividends paid by corporations or mutual funds; if you have a C Corporation business, most likely you will have to file this form,
• 1099-R: reports distributions from retirement plans, such as pensions, annuities, IRAs, or 401(k)s.

How To File The 1099 Forms Correctly?

If you are a payer who needs to file 1099 forms, you should follow these steps:

• determine which type of 1099 form you need to file based on the type of payment you made,
• obtain the payee’s name, address, and taxpayer identification number (TIN), such as Social Security number (SSN) or employer identification number (EIN); you should use Form W-9 to request this information from the payee,
• fill out the appropriate 1099 form with the required information,
• send a copy of the 1099 form to the payee by January 31 of the following year; you can send it by mail or electronically if the payee agrees to receive it electronically,
• send a copy of the 1099 form to the IRS by February 28 of the following year if filing by paper or by March 31 of the following year if filing electronically; you can use Form 1096 to summarize and transmit your paper forms to the IRS; you can use the IRS FIRE (Filing Information Returns Electronically) system or IRIS to file your forms electronically; in addition, 1099s can be filed via QuickBooks or different online vendors,
• keep a copy of the 1099 form(s) for your records.

Conclusions

You should be aware of the penalties for 1099 late filing, see here.

Filing 1099 forms can be a complex and time-consuming process. However, by following the rules and guidelines, you can ensure that you comply with the tax laws and avoid any penalties or audits.

If you need help with your business tax and accounting, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

If you are a client who hires independent contractors, you may need to request a W-9 form from them. In July 2023 the IRS has provided a draft version of an updated W-9 form. The draft form can be found by clicking here.

What You Need to Know About the W-9 Form?

A W-9 form is an IRS document that collects the contractor’s name, address, tax identification number, tax classification. In addition, it collects certification that they are not subject to backup withholding or foreign account tax compliance act (FATCA) reporting. The W-9 form helps you report the payments you make to the contractor on a 1099-NEC form at the end of the year.

Why Do You Need a W-9 Form from Your Contractor?

The main reason is to verify their identity and tax status. If you pay a contractor over $600 in a year, you must report it to the IRS and the contractor. In conclusion, the W-9 form helps you accurately complete the 1099-NEC form, avoiding penalties or audits.

How Do You Request a W-9 Form from Your Contractor?

The best practice is to ask for it before you make the first payment to them. You can send them a copy of the W-9 form by mail, email, or fax. Or you can direct them to download it from the IRS website. In addition, you should also let them know why you need the form and when you expect to receive it back. You can also include a deadline for returning the form and a reminder of the consequences of not providing it, such as withholding taxes from their payments or even possibly terminating their engagement.

What Do You Do With the W-9 Form Once You Receive it?

It is recommended that you review the form for completeness and accuracy. Make sure it matches the information on your contract and invoices. You should also keep a copy of the form in your records for at least four years after the last payment you make to the contractor. You do not need to send the W-9 form to the IRS, but you will use it to prepare the 1099-NEC form that you will send to both the IRS and the contractor by January 31 of the following year.

What Is New on the W-9 Form Updated?

A new section, line 3b, has been added to the form. This line needs to be filled out by entities that pass income and losses to their partners, owners, or beneficiaries (known as flow-through entities). They need to indicate if they have any foreign partners, owners, or beneficiaries, either directly or indirectly. This information is required when the flow-through entity provides a Form W-9 to another similar entity. The purpose of this change is to help the flow-through entity know about its indirect foreign partners, owners, or beneficiaries. This way, it can meet any reporting requirements related to them.

The W-9 form is crucial for tax compliance and avoiding issues with the IRS or contractors. Request it early, review it thoroughly, and store it securely to maintain a smooth relationship with your contractors.

In the meantime, if you encounter any issues or have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

If you are an employer who manages a restaurant, you may have to allocate tips to your employees who receive tip income in some special situations and you should know the methods of tips allocation that you can chose. You can check here our article regarding “Allocated Tips”.

Methods of Allocation

There are 3 methods of tip allocation that you can use:

• the good-faith agreement method,
• the hours-worked method,
• the gross receipts method.

Each method has its own rules and limitations, and you must choose one method for each calendar year. You may allocate the tips for the respective calendar year either annually, by payroll period or by using reasonable divisions of the calendar year, such as quarters, months, semimonthly periods, etc.

Good Faith Agreement Method

The good-faith agreement method allocates tips based on a written agreement between you and at least two-thirds of your tipped employees of each occupational category (for example, waitstaff, bussers, maître d’s). You can use this method only if the agreement meets certain requirements:

1. Allocates the difference between total reported tips and 8% (or the lower rate) of gross receipts among tipped employees in a way that approximately reflects the actual distribution of tip income among employees,
2. Becomes effective on the first day of a payroll period that starts after the agreement’s adoption date, but no later than January 1 of the following year,
3. Has to be adopted when there are tipped employees in each job category who would be impacted by the agreement,
4. Allows for cancellation through a written agreement adopted by at least two-thirds of the tipped employees in occupational categories affected by the agreement. And the cancellation only takes effect at the start of a payroll period.

Hours-Worked Method

If there is no good-faith agreement and your business has less than 25 full-time employees, both tipped and non-tipped, in a payroll period, you can use the hours-worked method to allocate tips. Your business is considered as having less than 25 full-time employees in a payroll period if the average daily hours worked by all employees per business day, tipped and non-tipped, is under 200 hours.

This method has several steps that you need to follow and you can find the details by clicking here. Furthermore, the hours-worked method allocates tips using a fraction where the numerator is the number of hours worked by each directly tipped employee and the denominator is the total number of hours worked by all directly tipped employees in the respective payroll period. You can use this method only if you meet certain conditions, such as having accurate records of hours worked and tips received by each employee, more details can be found here.

Gross Receipts Method For Tips Allocation

If there’s no good-faith agreement for the payroll period, you can calculate the difference between the total reported tips and 8% of gross receipts using this method. This method has several steps that you need to follow and you can find the details by clicking here. But it is important to know that this method allocates tips based on a fraction that has for the numerator the amount of the establishment’s gross receipts attributable to the directly tipped employee and as the denominator the gross receipts attributable to all directly tipped employees.

Moreover, you can check here an example to better understand this method.

In summary, you must report the allocated tips to the IRS and to your employees. File Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, to report the tips received and allocated by your establishment. You must also show the allocated tips on each employee’s Form W-2, Wage and Tax Statement, in box 8 and choose a method of tips allocation. You must check on the W-2 form on line 7a, 7b or 7c the method used. However, you do not withhold income tax or FICA taxes on allocated tips.

Besides, you can check our blogs related to these subjects and find out more here.

In the meantime, if you need accounting and tax services for your business, we are here to help. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.