Tax best practices every pizza shop should know

Running a pizzeria involves more than crafting delicious pies—it's a business requiring careful financial planning and management. 

With restaurant income tax rates potentially climbing as high as 37%, mastering tax preparation and planning is essential for your pizza shop's survival. Here are some vital tax best practices every pizzeria owner should know.

Understand your tax responsibilities

Income taxes are a fundamental aspect of running a business. For a pizza shop, tax preparation involves gathering components from various parts of your operations and presenting them to the IRS. Your tax returns should include:

• Payroll and labor costs

• Inventory expenses

• Sales tax collected

• Capital investments

• Other operational expenses

• Integrate your systems for accurate reporting

To gather the necessary information, your point of sale (POS) system, accounting software, time tracking, inventory management, and payroll systems must work together. This integration helps generate key reports like cost of goods sold (COGS) and profit and loss (P&L) statements.

Maximize deductions to minimize tax payments

Tax deductions are the most effective way to lower your overall tax bill. Here are some key deductions every pizzeria should be aware of:

• Depreciation on major equipment purchases

• Cost of goods sold (COGS)

• Marketing and advertising costs

• Software expenses

• Employer taxes

• Employee rewards and events

• Work Opportunity Tax Credit

• Professional fees

• Contractor costs

• Maintenance and repairs

• Renovation expenses

• Insurance premiums

• Interest on business-related loans

• Business use of vehicles

• Banking fees

Maintain detailed records year-round

The IRS demands thorough documentation for every expense. Keep both hard copies and electronic versions of the following for at least three years:

• Receipts

• Invoices

• Mileage logs

• Lease agreements

• Insurance statements

• Expense reports

• Payroll reports

• Inventory reports

• Sales reports

• Balance sheets

• Cash flow statements

Never skip filing (even if you can't pay)

If you can't pay on time, file for an extension or make a partial payment. The penalty for failure to file is significantly larger than the penalty for failure to pay. If you encounter cash flow problems, communicate with the IRS to negotiate or demonstrate reasonable cause.

Follow these tax best practices to ensure that your pizzeria operates smoothly, avoids unnecessary penalties, and maximizes its potential deductions. Taxes aren’t fun, but staying on top of them is essential to the long-term success of your pizza shop.