Accounting and Tax Issues for the Hospitality Industry
The first thing that comes to mind when I think about accounting for restaurants, bars and nightclubs is sales tax. Sales tax is what they call a “trust fund tax,” which means that the business owner is, in essence, holding the state’s money until it’s time to remit it. There is no reason why it should not be paid on time, every time, because it was never money that belonged to the business or its owners.
If a business collects more than $300,000 in sales tax annually, it is required to pay monthly. In New York, monthly sales taxes are due between the 20th and the 22nd of each month. Most often, sales tax is due quarterly, but the sales tax quarters are actually different from the quarters most people are used to; they end in February, May, August and November.
The quarter ending on February 28 is due March 20
The quarter ending on May 31 is due June 20
The quarter ending on August 31 is due September 20
The quarter ending on November 30 is due December 20
If a business in New York State collects below $3,000 of sales tax in one year, sales tax is due only once a year. However, we suggest you continue to file quarterly until the State sends you a letter confirming that you can file annually. You can always call the N.Y. State Sales Tax Department at 518-485-2889 to try and speed up the process.
It is important to stay on top of it, whether it means keeping a separate bank account or whatever else is necessary to put those funds aside so that you are ready to pay when the time comes.
One thing many people don’t realize about sales tax is that it is technically a “sales and use tax.” That means if the proprietor of a business buys equipment from out of state, whether it’s a notebook or a refrigerator, he or she is required to pay the use tax on it. If the business owner doesn’t pay the use tax and subsequently gets audited, there will be an assessment – plus penalties and interest.
How do I keep track of the tips my employees make?
When it comes to payroll in the hospitality industry, the minimum wage for tipped employees in New York State is $5.00 per hour – as long as their tips paid cover the other $2.25 per hour required to reach the state minimum wage of $7.25 per hour.
A problem that is particularly unique to the hospitality industry is how to account for and report tips. The major payroll companies like ADP and Paychex have systems in place to address gratuity accounting and reporting. For that reason, we usually recommend our hospitality clients to use an outside payroll company.
If a restaurant collects a gratuity, service charge or tip, it is generally required to distribute all of it to the employees. However, it is legal to retain a certain percentage of tips made on credit cards. The amount that an establishment gets charged for credit card processing can be deducted from the credit card tips it distributes to employees at the end of the night. Some restaurant and bar owners are unaware of this, a practice that can add up to a considerable amount of money over time.
Another thing to keep in mind is that there is something called the FICA Tip Credit, Form 8027. This credit allows some establishments to take a credit toward part of the payroll tax paid on tips. It’s another thing to keep in mind when you’re doing your end of the year tax filing if you own a restaurant, bar or nightclub.
One last thing you may want to do is check in with a labor attorney to make sure you’re on top of all the employment regulations.
Can you work with this bag filled with random receipts and bank statements?
Sometimes in the industry, it is very easy to get distracted. There are so many things you can get caught up in — the marketing, the advertising, the kitchen, learning new recipes, learning new drinks, talking to the DJs and promoters, and the list goes on. You do not want to get caught up in any one or two of those and forget about the bottom line. You’re in this to make money and make a living.
Depending on the size of the business, QuickBooks is generally the best way to keep track of your profits and losses. The one thing QuickBooks is lacking is a great inventory control and inventory tracking system. It might make sense for some businesses to look into a separate software to track inventory.
Depending on the POS system a business runs, sales can be integrated into QuickBooks or other software they may use. Of course, like any other automated function, the business owner should always look over the information the program generates for errors. Chances are there will always be something you need to change.
However a bar or nightclub keeps track of finances, whether it’s a POS system or an Excel spreadsheet, it is very important to enter sales figures every night. This way, there will be no need to backtrack later. Once everything is in QuickBooks, it will be easy to tell if you are actually running a profitable business just by printing out a profit and loss statement, and maybe even a balance sheet, whenever you want.
We are here to help your business thrive. We hope to see my business clients at least once a quarter, if not once a month, depending on the size of the enterprise. We will review the payroll and sales tax and make sure that you have been reporting the correct numbers and paying the sales tax based on those numbers.
How accurate have your payroll and sales tax calculations been? What steps can you take to avoid being audited by the state?