Top Ten Tax Mistakes For Restaurant Owners

by Gray Reed & McGraw

If you are thinking about getting into the restaurant business there are a multitude of issues that you need to consider. One of the most important is taxes.  By this I mean, doing the appropriate advanced planning and also running the business properly. Here is my top ten list of mistakes restaurant owners make:

  1. Employee Classification – Misclassifying workers as independent contractors and not employees can be  terrible problem.  Restaurant workers (chefs, waiters, dishwashers, etc.) are employees.  Employers don’t get to arbitrarily pick classifications.  The underlying question is whether the worker is under your “direction” and “control.”  Good news is that if you have misclassified there are a variety of solutions. For instance the IRS has a voluntary classification settlement program that can mitigate damages if you act quickly enough.
  2. Choice of Entity – This is an important decision that needs careful thought.   Proper choice of entity can save you tax if the company is profitable and shield you from tax liability if it is not.  For instance, certain types of limited liability entities can shield you from discharge of debt income (a common problem for restaurants) – others cannot.
  3. Failure to Pay Employment Taxes – Many companies in distress find that in order to keep the company going they have to delay payment to certain creditors.  A favorite is not paying employment taxes.  This is usually a HUGE MISTAKE.  The IRS not only hits the company with huge penalties – but the responsible persons can be liable for the Trust Fund Recovery Penalty in their individual capacity.  The trust fund recovery penalty is also not dischargable in bankruptcy.
  4. Failure to Maintain Good Standing with Secretary of State - It is very common for business owners to fail to observe responsibilities with the Texas Secretary of State and/or the Texas Comptroller.  This can lead to loss of limited liabilty.  For instance, Texas law provides that if a company fails to file a report or pay a tax or penalty – each director or officer of a company will face personal liability for any debt of the company.
  5. Paying Sales Tax - Failure to pay the appropriate sales tax will lead to personal liability for these taxes.  Additionally, the Texas Comptroller does not take kindly to this failure and can and will shut the restaurant down.
  6. Tip Reporting - There are IRS tip reporting requirements for both employees and employers.  You need to have a system in place that properly accounts for this.
  7. Structuring Deposits - Generally, when a deposit of cash is made into a bank of greater than $10,000 a Currency Transaction Report (CTR) must be filed.  For restaurant owners dealing in cash is a normal operation.  And large deposits are not uncommon.   Many people think that the CTR will raise red flags. The bigger red flag is when you attempt to avoid the requirement by depositing less than $10,000 on a regular basis.  This is a felony!  To avoid this problem altogether you can actually apply for an exemption with the government.
  8. Failure to Employ Qualified Professionals – Running a restaurant is not a do-it-yourself type operation.  There are legal/accounting issues that come up that simply require help.  Gaining good advice and assistance will generally help you make money.
  9. Not Keeping Good Records - Not many people like to go to the trouble of keeping detailed records. The Internal Revenue Code permits various business deductions – but only if you follow the rules.  The major  rule is maintaining documents that show you paid the expense and also demonstrating that the expense was business related.  If you are too busy – find a qualified bookkeeper.  The bookkeeper will save you money.
  10. Property Taxes – Generally, restaurants will lease a location to operate the business (as opposed to buying the property).  It is important to have a well written lease that clearly delineates who will be responsible for paying property taxes.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Gray Reed & McGraw | Attorney Advertising

Written by:

Gray Reed & McGraw

Gray Reed & McGraw on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.