Disclaimer (duh):
This article is for general informational purposes only and is not tax advice. Every restaurant’s situation is different – always consult a qualified tax professional about your specific circumstances.
Intro: Why this matters for your restaurant
Most restaurant owners don’t have a tax problem – they have a tracking problem.
Margins are tight, expenses move fast, and by the time tax season arrives, the real question isn’t what you spent – it’s how clearly those costs were captured and categorized.
The good news? Restaurants have more legitimate expense categories than most businesses. The challenge isn’t “finding loopholes.” It’s recognizing what already exists in your operation and making sure you’re tracking it properly.
Think of this article as a cheat sheet for conversations with your accountant – not hacks, but areas restaurant owners often overlook.
1. Labor Costs Are More Than Just Wages
Payroll is obvious. But restaurants have extra layers that sometimes slip through the cracks.
Beyond hourly wages and salaries, restaurants often incur:
- employer payroll taxes
- overtime
- training wages
- onboarding costs
- uniforms or required apparel
- certain employee benefit contributions**
For restaurants, this typically refers to employer-paid or employer-matched benefits tied to employees. Here are the common ones that actually apply in hospitality:
**What “Employee Benefit Contributions” Usually Includes
Health-related
- Employer-paid portion of health insurance premiums
- Dental or vision contributions
- Health Reimbursement Arrangements (HRAs) or similar plans
Retirement
- Employer 401(k) matching contributions
- Contributions to SIMPLE IRA or other retirement plans
Insurance
- Employer-paid life insurance
- Disability insurance
- Workers’ comp is separate, but should definitely be tracked as a labor-related expense
Other employer-paid benefits
- Paid family leave programs (where applicable)
- Employer-paid commuter benefits (less common in restaurants, but possible)
- Education or certification reimbursements (e.g., ServSafe, sommelier training, culinary classes)
Labor is usually your biggest expense. Even small tracking improvements here can make a noticeable difference in how clean your books look at tax time.
2. Equipment & Kitchen Assets May Work in Your Favor
Restaurants need to invest heavily in items that last well beyond a single service:
- Ovens and refrigeration
- Prep tables and shelving
- POS hardware
- Smallwares purchased in volume
These purchases aren’t always treated as simple expenses. Depending on the cost of the item and how it’s used, equipment may be handled in different ways:
- Lower-cost items may be fully deducted in the year you buy them
- Larger equipment is often depreciated, meaning the cost is spread over multiple years
- In some cases, businesses may be able to accelerate the deduction and write off most or all of the purchase in the first year
Why this matters: the way equipment is categorized affects when you receive the tax benefit, which can impact cash flow and year-end planning.
The takeaway isn’t to memorize depreciation rules. It’s to recognize that equipment purchases are a tax decision as well as an operational one — especially for large replacements or upgrades.
3. Repairs vs. Improvements – A Big Distinction
Restaurants are constantly fixing things:
- Plumbing issues
- Refrigeration repairs
- Hood or equipment service
- Floor patching
- Replacement parts
Many of these costs qualify as repairs, which are typically deductible in the year they’re incurred.
The distinction comes down to a simple question:
Did you fix something — or did you upgrade it?
In general:
- Repairs keep existing equipment or space operating the way it already was
- Improvements make something better, larger, more efficient, or extend its useful life
That difference matters.
For example:
- Replacing a compressor in a walk-in = likely a repair
- Replacing the entire walk-in = improvement
- Patching damaged flooring = repair
- Installing new flooring throughout the kitchen = improvement
Improvements are usually treated as capital projects, meaning the cost is depreciated over multiple years instead of deducted all at once.
This often comes into play if you’ve done:
- A kitchen refresh or reconfiguration
- Dining room remodels or build-outs
- Major equipment replacements
- Ventilation, electrical, or plumbing upgrades
The key takeaway: if a project changed the space or significantly upgraded it, it’s probably not a same-year deduction — and how it’s categorized can have a major impact on your tax timing.
If you completed any larger projects this year, it’s worth reviewing how those costs were recorded before tax season.
4. Your Digital Stack Counts, Too
Modern restaurants run on subscriptions.
Common examples include:
- POS software
- Scheduling platforms
- Payroll services
- Inventory tools
- Delivery platform fees
- Online ordering systems
- Website hosting and marketing tools
Individually, these costs may seem small. Together, they represent a meaningful part of your operating infrastructure.
The challenge is that these expenses often get scattered:
- Different vendors billing monthly
- Charges hitting multiple credit cards or bank accounts
- Free trials that quietly turn into ongoing costs
By the time tax season arrives, some of these payments are easy to miss – especially if they’re mixed into general credit card statements or categorized inconsistently.
A few simple habits can make a big difference:
- Run one monthly review of all recurring charges
- Keep subscriptions tied to one primary business card or account when possible
- Use consistent bookkeeping categories for software and platform fees
Why this matters: when these costs are cleanly tracked, they’re easy to identify, total, and discuss at tax time. When they’re scattered, they often get underreported – or missed entirely.
Subscription creep is operational. But clean tracking turns it into a legitimate business deduction.
5. Marketing, Professional Services & “Behind-the-Scenes” Costs
Not all restaurant expenses live in the kitchen.
Often overlooked categories include:
- bookkeeping and accounting fees
- legal services
- consulting
- marketing and advertising
- photography
- website development
- recruiting costs
If it helps you operate or grow the business, it’s worth making sure it’s properly recorded and discussed at tax time.
The real goal isn’t tricks – it’s clarity
Restaurants don’t need tax tricks. They need clean records and good questions.
If you run a restaurant, tax season shouldn’t be a guessing game. It should be a review of systems you already have in place.
Even one or two adjustments in tracking can make your conversation with your accountant shorter, clearer, and potentially more favorable.
And that’s a win.