Pizza Today - January 2018 - 43

drop in profitability, some owners elect
to delay payment to certain creditors,
including the government by ignoring
employment taxes. Big mistake, says Brad
Dimond, a partner with Arizona-based
CPA firm Herny+Horne.
"It's very easy for someone cashstrapped to use this money, but it's not
their money to keep and a very dangerous
road to go down," Dimond says.
If the IRS catches wind, a restaurant
can expect fines, while the owner could
be criminally charged with a felony. The
owner could also be liable for the Trust
Fund Recovery Penalty, a charge that
cannot be wiped away in bankruptcy.
"Employment taxes require much more
urgency than they sometimes receive,"
Gair says.
MISTAKE NO. 2: NOT TAKING ADVANTAGE
OF TAX INCENTIVES. From deferring

gift-card sales as recognized income
until the card is redeemed to writing off
remodeling costs and fixed-asset purchases
such as a new oven or freezer, far too
many restaurant owners unfortunately
overlook incentives that can help them
reduce their tax burden. Working with a
tax professional who knows the rules as
well as restaurant industry peculiarities
can certainly prove advantageous.
"There are a lot of beneficial rules
restaurants can use to their favor ... and
many purchases can actually be expensed
rather than sitting on the balance sheet,"
says Corinne Baughman, a partner with
Moss Adams LLP, one of the nation's
largest public accounting firms.

* MISTAKE NO. 3: NEGLECTING TO
REPORT TIPS. Though becoming less of

a problem with the rise of credit card
transactions, restaurant owners can
nevertheless face challenges in getting
servers to report their tips. The IRS,
however, maintains clear tip reporting
requirements for both employees and
employers.
"There are rules in place to address
anything that shortchanges the
government," Gair reminds.
The first and most critical step to
avoid running afoul of the IRS: have a

formal system in place that accounts for
tip reporting requirements and regularly
communicate these requirements to staff.
Such efforts could compel some mercy
from the IRS.
Of note, restaurant owners also have
a financial incentive to make sure tip
reporting takes place with the FICA tip
credit, which provides a tax credit for tips
in excess of the minimum wage.
* MISTAKE NO. 4: MISCLASSIFYING
EMPLOYEES.While some employees,

specifically certain types of delivery
drivers, might be considered contractors,
most everyone else in a restaurant
operation is an employee. Misclassifying
staff as an independent contractor rather
than an employee -- someone who is
under the owner's "direction" and "control"
-- will almost certainly draw the ire of the
IRS.
"I can't tell you how many clients I have
who treat all staff as contractors rather
than employees," Gair says. "In an audit,
the amount of liability for that error could
be substantial."
On the plus side, owners have various
ways to correct a misclassified employee,
including the IRS' voluntary classification
settlement program.
* MISTAKE NO. 5: SCREWING UP TAXEXEMPT SALES. From the purchases of

individual customers using food assistance
programs to nonprofit purchases from
schools or churches, restaurants must be
aware of the documentation they need to
collect during tax-exempt transactions.
"This is an area several states are getting
active in auditing and you can get hit with
taxes the government thinks you should
have paid," Baughman says, noting that
each taxing jurisdiction maintains its own
rules regarding recordkeeping in this area.

* MISTAKE NO. 6: OVERLOOKING STATE
AND LOCAL TAXES. The federal government

is far from the only entity interested in
taxes, and many restaurants struggle to
fully comply with state and local taxes.
In fact, Baughman says, state and local
taxes regularly prove the most difficult to
manage given that levies can be assessed

by both counties and cities while the
precise rates, in some instances, might
shift throughout the year. Even dine-in or
delivery tickets can be subject to different
taxes.
"It's actually more likely to run afoul
of state and local jurisdictions than the
feds because there's so much more at the
state or local level that can get lost in the
shuffle," Baughman says.
The solution? Knowledge, Baughman
says.
"While you can always pay a service
provider to provide you with a summary
of applicable taxes and fees, you can also
get this information from city, county
and state Web sites," she adds. "They all
usually have a 'Doing Business In' section
that discusses these." n

Chicago-based writer DANIEL P. SMITH has
covered business issues and best practices for
a variety of trade publications, newspapers,
and magazines.

AVOIDING TAX TROUBLES:
THREE BEST PRACTICES TO
MINIMIZE TAX ERRORS
* ACT FAST. Should a business
receive a notice from the IRS or another
taxing body, Moss Adams partner Corinne
Baughman advises ownership to respond
with truthfulness and speed. "Don't hide
it or be afraid of it," she says. "If you feel
uncomfortable, then get a pro involved
who knows the rules."
* LEVERAGE BOOK SMARTS. A bookkeeper skilled in QuickBooks and familiar
with the peculiarities of the restaurant
industry is worth his or her weight in
gold, attorney David Gair says. "You don't
necessarily need a CPA, but employing a
very good bookkeeper is one of the best
things a business owner can do," he says.
* MAINTAIN RECORDS. Tax law
allows taxpayers to take a range of
business-related deductions such as mileage. Without documentation, however,
a business owner cannot take those
deductions and comply with substantiation rules.

J A N UA R Y 2 0 1 8 / P I Z Z AT O D AY. C O M / 4 3


http://www.PIZZATODAY.COM

Pizza Today - January 2018

Table of Contents for the Digital Edition of Pizza Today - January 2018

Pizza Today - January 2018
Commentary
Contents
Contributors
Expo Spotlight
Interact
Conversation
Man on the Street
Tony’s Trending Recipe
Tony’s Trending Recipe
At Your Service
Destinations
Knead to Know
Road to Pizza Expo
Red Wagon
Pizza Today on the Road: Red Wagon Pizza Co. Minneapolis, Mn
Product Showcase
Pizza Today Yellow Pages
The Marketplace
Reader’s Resource
Mike’s Monthy Tip
Pizza Today - January 2018 - CT1
Pizza Today - January 2018 - CT2
Pizza Today - January 2018 - Pizza Today - January 2018
Pizza Today - January 2018 - Cover2
Pizza Today - January 2018 - Commentary
Pizza Today - January 2018 - 4
Pizza Today - January 2018 - 5
Pizza Today - January 2018 - 6
Pizza Today - January 2018 - 7
Pizza Today - January 2018 - Contents
Pizza Today - January 2018 - 9
Pizza Today - January 2018 - Contributors
Pizza Today - January 2018 - 11
Pizza Today - January 2018 - Expo Spotlight
Pizza Today - January 2018 - 13
Pizza Today - January 2018 - Interact
Pizza Today - January 2018 - 15
Pizza Today - January 2018 - Conversation
Pizza Today - January 2018 - 17
Pizza Today - January 2018 - Man on the Street
Pizza Today - January 2018 - 19
Pizza Today - January 2018 - Tony’s Trending Recipe
Pizza Today - January 2018 - 21
Pizza Today - January 2018 - At Your Service
Pizza Today - January 2018 - 23
Pizza Today - January 2018 - Destinations
Pizza Today - January 2018 - 25
Pizza Today - January 2018 - Knead to Know
Pizza Today - January 2018 - 27
Pizza Today - January 2018 - 28
Pizza Today - January 2018 - 29
Pizza Today - January 2018 - 30
Pizza Today - January 2018 - 31
Pizza Today - January 2018 - 32
Pizza Today - January 2018 - 33
Pizza Today - January 2018 - 34
Pizza Today - January 2018 - 35
Pizza Today - January 2018 - 36
Pizza Today - January 2018 - 37
Pizza Today - January 2018 - 38
Pizza Today - January 2018 - 39
Pizza Today - January 2018 - 40
Pizza Today - January 2018 - 41
Pizza Today - January 2018 - 42
Pizza Today - January 2018 - 43
Pizza Today - January 2018 - Road to Pizza Expo
Pizza Today - January 2018 - 45
Pizza Today - January 2018 - 46
Pizza Today - January 2018 - 47
Pizza Today - January 2018 - Pizza Today on the Road: Red Wagon Pizza Co. Minneapolis, Mn
Pizza Today - January 2018 - 49
Pizza Today - January 2018 - 50
Pizza Today - January 2018 - 51
Pizza Today - January 2018 - 52
Pizza Today - January 2018 - Product Showcase
Pizza Today - January 2018 - 54
Pizza Today - January 2018 - 55
Pizza Today - January 2018 - Pizza Today Yellow Pages
Pizza Today - January 2018 - 57
Pizza Today - January 2018 - 58
Pizza Today - January 2018 - 59
Pizza Today - January 2018 - 60
Pizza Today - January 2018 - 61
Pizza Today - January 2018 - 62
Pizza Today - January 2018 - 63
Pizza Today - January 2018 - The Marketplace
Pizza Today - January 2018 - 65
Pizza Today - January 2018 - 66
Pizza Today - January 2018 - 67
Pizza Today - January 2018 - 68
Pizza Today - January 2018 - 69
Pizza Today - January 2018 - 70
Pizza Today - January 2018 - 71
Pizza Today - January 2018 - 72
Pizza Today - January 2018 - Reader’s Resource
Pizza Today - January 2018 - Mike’s Monthy Tip
Pizza Today - January 2018 - Cover3
Pizza Today - January 2018 - Cover4
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