Money-Saving Tax Deductions for Restaurant Owners

Like all entrepreneurs, restaurant owners are always looking for ways to make their businesses more profitable. Although increasing revenue with additional income streams is a good strategy, saving money through tax deductions can be very effective, too. If you need guidance, this article outlines money-saving tax deductions for restaurant owners that will improve your bottom line.

Cost of Goods Sold 

Cost of goods sold (COGS) refers to expenses that are directly related to making the main product a business sells. These expenses are necessary to a business’ operations, so they’re fully tax-deductible the year in which they’re incurred, such as:

• Food – The main purpose of a restaurant is to sell food, so the cost of ingredients is deductible as COGS. These prices can change greatly over time, so be sure to keep accurate records to justify your tax deductions in the case of an IRS audit.


• Smallwares – Since things like cookware, flatware and catering supplies are directly related to making and serving food, the purchase price is tax-deductible. Small kitchen gadgets like can openers, kitchen timers and food scales are in this category, too.


• Small Appliances – The IRS considers small appliances that cost under $500, such as some commercial microwave ovens, to be smallwares. The cost of small appliances is like any other COGS expense, so you can deduct the full price in the same year in which the purchase is made. 

Operating Expenses

Although the costs of goods sold are directly related to producing a business’ main product, operating expenses (OPEX) are daily expenses that contribute indirectly. Operating expenses, which usually make up the majority of a business’ expenses, include:

Labor Costs

Labor is one of a small business’ greatest expenses, if not its biggest. If you’re a restaurant owner who’s looking to offset these costs, remember that you can deduct:

• Salaries & Wages – Chefs, servers, and other staff members are absolutely essential to a restaurant’s normal operations, so their wages, salaries and bonuses are expensable. 


• Employee Benefits – If you pay a portion of your employees’ health insurance premiums or offer 401(k) matching, these expenses are tax-deductible.


• Uniforms & Foodservice Apparel – If you provide your employees with uniforms, aprons or other apparel needed for them to do their job, the clothing can be expensed.


• Half of Self-Employment Tax – According to TurboTax.Intuit.com, self-employed people must pay Self-Employment Contributions Act (SECA) tax, a combination of both the employer and employee FICA taxes for social security and medicare. Thankfully, the IRS allows business owners to write off 50% of this self-employment tax.

Property Overhead

Expenses related to the business space itself can really add up over time. Whether you own the property or lease it, tax deductions for restaurant owners cover both fixed and variable ongoing expenses, such as:

• Monthly Rent or Mortgage – This is a recurring fixed overhead cost, so the IRS allows you to deduct the entire amount the year in which it’s paid. For lease deposits and mortgage down payments, refer to the tangible assets section of this article.


• Leased Kitchen Equipment – One of the biggest costs of starting a restaurant is kitchen equipment, so many entrepreneurs opt to lease rather than buy. Thankfully, the lease payments are deductible


• Utilities – Gas, water and electricity are all variable overhead costs that can be expensed. These costs can vary greatly throughout the year, so keep good records.


• Property Tax – If you own the space, writing off the property taxes can significantly reduce your taxable income.

The cost of kitchen equipment can be deducted through the process of depreciation, gradually writing off expenses over the course of multiple years.

Repairs & Maintenance

Because restaurants are usually high-volume businesses, the equipment and facilities require proper maintenance. If you’re a restaurant owner, you’ll be happy to hear that you can expense:

• Replacement Parts – Does your reach-in refrigerator need a new gasket? Is your fryer’s thermostat not working properly? If you need to purchase replacement parts, be sure to deduct the cost at the end of the year.


• Service Appointments – Calling a plumber to fix a leaky faucet or an authorized technician to repair a broken oven can be expensive. Fortunately, these costs can be used as tax write-offs.


• Facility Maintenance – Do the walls need paint? Luckily, you can deduct the entire cost in one year. However, if you make significant changes that increase the value of your business, such as remodeling the interior, the costs are expensed differently.

Automobile Expenses

From attending business meetings to making supply runs, running a foodservice establishment can put a lot of miles on your car. Fortunately, many automobile-related expenses can be used as tax deductions for restaurant owners, such as:

• Vehicle Leases – Monthly vehicle lease payments are fully deductible in one year. However, if you use a vehicle for both personal and business purposes, only a portion of the payment is expensable.


• Vehicle Mileage – You can either keep track of the actual expenses if you want to be exact, or you can use the standard mileage deduction to estimate the cost of operating the vehicle. This changes every year, so be sure to check the IRS website for the current standard mileage deduction rate. Unfortunately, commuting costs aren’t deductible at all.


• Employee Mileage Reimbursement – According to a BusinessNewsDaily.com article on mileage reimbursement laws, mileage reimbursement given to employees who make deliveries is tax-deductible for the employer. 

Professional Services

All small businesses need the help of lawyers, accountants and other professionals, so the IRS allows restaurant owners to deduct the cost of:

• Accountants – Hiring an accountant for your restaurant can help you not only manage your budget but also find tax deductions. Interestingly, the fees you pay to help find tax write-offs can be used to reduce your taxable income.


• Lawyers – From filing LLC paperwork to negotiating business contracts, lawyers can be very helpful to small businesses. If the idea of hefty legal fees intimidates you, just remember that they’re tax-deductible.


• Consultants – Do you want to expand your business by starting a food truck? Need advice on how to expand into catering? If so, you might hire a consultant to help you, so don’t forget to write off consulting fees.

Marketing & Advertising

Competition among restaurants is fierce, so a good marketing and advertising strategy is key if you want to be successful. Promoting your restaurant or cafe can be expensive, so when tax season comes, don’t forget to deduct:

• Website Maintenance – From domain registration to site hosting, websites have a lot of ongoing expenses: that’s why the IRS allows you to deduct these immediate expenses in the same year they’re incurred. 


• Google & Social Media Ads – If you run any Google ads for your restaurant, don’t forget to keep track of these costs so you can reduce your taxable income. Paid ads on Facebook, Instagram or other social networks are deductible as well.


• Traditional Advertising – The cost of traditional forms of marketing such as mail flyers and newspaper ads can be written off, too. 

Vehicle expenses are tax-deductible for restaurant owners.

Tangible Assets

Starting or expanding a restaurant requires assets that have a useful life of more than 1 year, the cost of which the IRS considers to be capital expenditures (CAPEX). In order to deduct the cost of tangible assets that physically exist, you must use depreciation, the process of gradually writing off costs over multiple years, for things like:

• Kitchen Equipment – While lease payments can be deducted in one year, the purchase price of ranges, freezers and other units must be expensed over multiple years. However, remember that anything under $500 is considered a type of COGS, so the full cost can be deducted in one year.


• Furniture – Dining room tables, chairs and booths are needed in almost every restaurant. Since furniture is intended for long-term use, the purchase price should be written off over time.


• Vehicle Purchases – Thankfully, you can deduct the price of a company car or van. If you use a vehicle for both business and personal needs, you can depreciate part of the price as long as you use the car for business more than 50% of the time.


• Down Payments – Did you buy the restaurant space by making an initial payment and then taking out a mortgage? If so, the down payment–like a rent deposit–should be depreciated over the course of multiple years.


• Additions and Remodeling – Things like eye-catching signage to bring in customers and renovations to make your restaurant more accessible improve your business’ ability to generate revenue, so the IRS sees them as depreciable capital expenses.

Intangible Assets

Restaurants also have a lot of intangible assets that don’t physically exist. Like physical assets, the IRS considers intangible assets to be capital expenses, so you can write off the cost through amortization, the process of expensing intangible assets over time. Examples include:

• Website Setup – Creating a website for your restaurant is essential for success. Since a website will contribute to your business for years to come, the IRS sees the price of building it as a capital expenditure that should be amortized.


• Organization Costs – Startup paperwork, along with associated legal fees, can be amortized. However, in some cases the IRS allows a startup organizational costs deduction of up to $5,000 in the first year.


• Registered Trademarks – Since trademarks provide value over time, the cost of registering a trademark is seen as a capital expenditure. So, it must be expensed over multiple years.


• Licenses & Permits – Do you have a restaurant liquor license? What about a live entertainment license? The benefit of these intangible assets will extend far beyond the year in which they’re purchased, so the cost should be amortized.

Other Business Deductions

Although there are many tax deductions for restaurant owners related to the cost of goods sold, overhead costs and professional fees, the IRS allows a number of other write-offs, such as:

• Business Insurance – Like health insurance, your property and liability insurance premiums are seen as operating expenses that can be fully deducted in one year.


• Net Operating Loss (NOL) Carryforward – A net operating loss (NOL) occurs if your deductions are greater than your taxable income for a given year. When this happens, the IRS allows you to “carry forward” the deductions that exceed taxable income into the following year so you can reduce your taxable income even more.


• Work Opportunity Tax Credit (WOTC) – Although not technically a tax deduction that lowers your taxable income but rather a tax credit that reduces the total tax paid, the Work Opportunity Tax Credit can be used by businesses that hire people who normally have difficulty finding employment, such as veterans, felons and food stamp recipients. 


• Qualified Business Income (QBI) – If you have an LLC or other pass-through entity and your total taxable income is under a certain limit, you may qualify for the Qualified Business Income (QBI) deduction, a 20% reduction in your taxable income. The 2023 limits are $182,100 for single filers or $364,200 for joint filers, and in 2024 the limits increase to $182,100 for single filers and $364,200 for joint filers. 


• Charitable Donations – The government recognizes the importance of giving back, so it allows charitable donations by business owners to be tax-deductible: just remember that political donations don’t count.

NOTE: Be sure to consult a tax professional regarding your business’ taxes.