Restaurant Tax Mistakes That Could Cost You Thousands
Running a restaurant in Texas is already challenging—managing staff, perfecting recipes, and keeping customers happy. But what about tax compliance? Many restaurant owners unknowingly overpay on taxes or, worse, underpay and face penalties from the IRS or the Texas Comptroller.
At FinAcct, we specialize in restaurant accounting, and we’ve seen firsthand how tax mistakes drain profits. This guide will help you navigate Texas restaurant taxes and avoid costly errors.
1. Are You Paying Too Much in Sales Tax?
The Problem:
- Texas restaurants must collect and remit sales tax on prepared food and beverages.
- Some non-taxable items may be incorrectly included in taxable sales.
- Many restaurants forget to track exemptions (e.g., employee meals).
The Fix:
✅ Know what’s taxable – Sales tax applies to dine-in and takeout, but some items (like cold packaged foods) may be exempt.
✅ Use automated POS systems – Ensure sales tax is correctly applied to different menu items.
✅ File on time – Texas requires monthly, quarterly, or annual tax filings, depending on revenue.
💡 How FinAcct Helps: We ensure your sales tax compliance is airtight, preventing penalties and overpayments.
2. Payroll Taxes & Tipped Wages – Are You Reporting Correctly?
The Problem:
- Restaurants must withhold payroll taxes from employee wages and tips.
- Incorrect tip reporting can lead to IRS audits.
- Misclassifying W-2 employees vs. 1099 contractors leads to tax penalties.
The Fix:
✅ Use a payroll system to track wages and tip reporting.
✅ Understand tip credit rules – The federal tip credit allows Texas employers to pay tipped employees as low as $2.13/hour, but taxes must still be handled correctly.
✅ Verify worker classification – Ensure staff are properly categorized (W-2 vs. 1099).
💡 How FinAcct Helps: We handle payroll taxes, ensuring you don’t underpay or overpay, reducing compliance risks.
3. Tax Deductions You Might Be Missing
Many restaurant owners overpay on taxes simply because they don’t claim all their deductions.
Common Deductible Expenses for Texas Restaurants:
✅ Food costs – Ingredients and supplies used in meal preparation.
✅ Employee wages & benefits – Including health insurance and payroll costs.
✅ Equipment & repairs – Stoves, ovens, refrigerators, and maintenance costs.
✅ Rent & utilities – Lease payments, electricity, and water bills.
✅ Marketing & advertising – Digital ads, signage, and promotional materials.
The Fix:
- Keep detailed records of all business expenses.
- Use restaurant accounting software to track spending.
- Consult with a tax expert to maximize deductions.
💡 How FinAcct Helps: We audit your expenses to uncover missed deductions, ensuring you only pay what you truly owe.
4. IRS Red Flags: How to Avoid Audits
The Problem:
- Excessive cash transactions raise suspicion.
- Underreporting income (especially tips) can trigger audits.
- Mixing business & personal expenses can lead to IRS scrutiny.
The Fix:
✅ Separate business & personal accounts – Never mix expenses.
✅ Accurately report all revenue – Including credit card payments, cash sales, and online orders.
✅ Work with an accountant – Stay ahead of potential tax issues before they become a problem.
💡 How FinAcct Helps: We handle tax filings accurately to prevent IRS red flags and ensure full compliance.
5. The True Cost of Tax Mistakes
What happens if you get it wrong?
❌ Late filings = Penalties – Missing a sales tax deadline in Texas can mean up to 10% in late fees.
❌ Payroll tax errors = Fines – Misreporting tips or wages can lead to IRS penalties.
❌ Missed deductions = Lost profits – If you overpay, you’re giving away money unnecessarily.
How FinAcct Can Help:
🔹 Ensure accurate tax filings – No more missed deadlines or penalties.
🔹 Optimize deductions – Keep more of your hard-earned revenue.
🔹 Prevent IRS audits – Stay compliant and stress-free.
📢 Don’t wait until tax season – schedule a free consultation with FinAcct today!