Accounting for New Jersey Restaurants: A Step-By-Step Guide

Accounting for New Jersey Restaurants: A Step-By-Step Guide

Many people dream of operating a restaurant, but without help, that business can fail. In some cases, these entrepreneurs focus on the food rather than the accounting side. While it might seem like a flashy business, proper accounting is vital to running a successful restaurant. If you have a restaurant in New Jersey, here is our step-by-step guide to help with those accounting duties.

 

Establish Your Accounting Practices

If you don’t know what you are doing with accounting, get some help. Find someone who has experience in the food and beverage industry. It will be better for your bottom line when your accountant knows the basics of the cost of goods sold, inventory management, and business operations. Many small business accounting services can help you with various practices, from tax services to payroll.

However, you need to keep all of those initial records in the proper order. Think about purchasing software that can track your expenses and profits. Some software is designed for restaurants. These programs allow you to create invoices, generate profit and loss statements, review cash flow, and track your revenue. With that, you can keep ahead of any surprises while accessing this information on demand.

 

Track Your Cash Flow With a Chart of Accounts

Your accountant might set up a chart of accounts to manage liabilities, expenses, assets, revenue, and equity. All of those items are broken down into categories. That information helps you to track the most critical areas of your business. If you don’t know what to track, your accountant can help you with these items.

 

Select the Right Point-of-Sale System

When you use the right point-of-sale system, you can tie all aspects of your restaurant together. These programs do more than create receipts or place orders. They can help with sales reporting and inventory management. Remember to find a system that your entire team can use.

 

Track the Right Information

Restaurants have different metrics that need to be tracked. Otherwise, you don’t know what is happening with your food costs, labor, and profits. You need to keep an eye on inventory. Consider implementing an inventory management system that can help you understand your business. Some systems can calculate which items are selling the best. When you track your inventory, you can take advantage of supply and ingredient discounts, avoid wasteful spending, and better understand your economics.

Any restaurant business is concerned with sales. You need to understand how much money is generated through different business areas. Some restaurants make more on food items than alcoholic beverages. You can also determine whether diners patronize your business for breakfast, lunch, or dinner when you track your sales.

Your restaurant stays in business by the amount of cash coming into the establishment. For that reason, you need to manage your money. Check your cash every day. You should run these reports on a weekly and monthly basis. With that, you can see trends in sales and make payments to vendors.

Speaking of vendors, they must be paid on time. While payments can be challenging to meet initially, you want to ensure that you receive goods from these suppliers. You can track expenses with accounting software. These programs can help you schedule payments so that you never miss another invoice.

One of the keys to a restaurant’s success is the quality of the employees. If you want to keep these valuable members of your business, you need to pay them. Tracking payroll can be challenging. Staff members are on different wage structures, and you have to think about those tax processes. Whether your employees are full-time, part-time, hourly, or salaried, you must ensure that they are always paid on time.

Finally, reconciliation is significant. This process makes sure that you account for everything in your business, including bank accounts, payroll, loans, and credit card bills.

 

Remember Reporting and Analysis

If you don’t have experience in the restaurant industry, there are specific calculations for accounting. These calculations can help generate financial statements and reports. When you work with a professional accountant, they can help you better understand some of these terms.

 

Cost of Goods Sold

With this calculation, you know how much it costs to make the food. You can calculate this by adding your initial inventory with your purchased merchandise. After that, subtract your existing inventory. When you have an accurate inventory, you can determine your exact costs of goods.

 

Prime Costs

This metric includes the cost of goods sold and the amount of labor. Your labor costs will reflect all of the benefits, payroll taxes, and wages for your staff. In general, those total labor costs should be less than one-third of your total revenue.

 

Food Costs

This metric might seem the same as the cost of goods sold, but it is different. Food costs are a ratio that is divided by the number of items needed to prepare a dish. If you want to determine these costs, you need to split the cost of goods sold by your total revenue. Take that number and multiply by 100.

 

Overhead

There are other costs that you need to operate a business, such as electricity, equipment costs, and rent. You can break down these costs on a daily or monthly billed basis. These costs must be paid whether your restaurant is successful or not.

 

Gross Profit

After calculating all of your sales and expenses, you can find gross profit by subtracting those expenses from sales.

Tracking your income and expenses is the least glamorous part of operating a restaurant in New Jersey. While you can handle some accounting responsibilities, think about seeking professional assistance. With an accountant, keep track of all areas in your business so that you can make solid financial decisions.

 

Looking for an Accountant for Your Small Business?

TMD Accounting has over 40 years of helping small businesses throughout Gloucester County. We can assist with payroll, taxes, and other financial matters. We want your restaurant to stay on track. Schedule a consultation by calling 1-856-228-2205.

 

What You Need to Know About New Restaurant Expenses in South Jersey

What You Need to Know About New Restaurant Expenses in South Jersey

Starting a restaurant business might seem fun. You can experiment with recipes and share those culinary delights with the community. Unfortunately, there are not-so-fun parts, such as applying for business licenses, planning for operating expenses, and adhering to local regulations. There are plenty of new business expenses to consider in South Jersey. Here are a few things to keep in mind before opening that new restaurant.

 

 

Overview of State, Federal, and Local Requirements

If you are thinking about opening a new restaurant, you need to follow some rules. You can’t open up the doors and serve customers. Before that first plate is passed over to the customer, you need a license to serve food. The local health department must inspect the space to ensure your business meets public health laws and regulations. You can find a checklist on the New Jersey Health Department’s website for what is needed to pass the food safety inspection.

Speaking of food safety, you will want to ensure that all of your managers and staff are up-to-date on the latest standards. In many cases, your employees will need a Food Handlers Certification. Some counties might offer a free program for food safety, but you often have to pay for the certification. ServSafe provides fee-based training to food managers and other restaurant employees.

Now that the food side is covered, you need to think about your business. You will need to form a corporation, professional corporation, or limited liability company with the New Jersey Division of Revenue & Enterprise Services (DORES). With that, you can withhold taxes from employees and apply for state grants. Plus, it makes you a legal business in New Jersey. All businesses must register for tax purposes.

After that, you will obtain a Federal Employer Identification Number (EIN), which will serve as your Federal Tax ID number. After doing that, you can meet all of the state tax obligations. Failure to register your business and meet food safety standards will lead to hefty fines and legal consequences.

Finally, think about insurance. What happens if someone falls in the restaurant or becomes sick from the food? A patron could hold you liable for any damages. At the minimum, you want a general liability insurance policy that protects you from an accident or bodily injury claim. Over time, your insurance needs could change. No matter what, you need insurance before welcoming customers into your establishment.

 

 

New Restaurant Start-Up Costs in South Jersey

Remember that there is a difference between costs and expenses. Small business accounting services can help you figure out the difference between the two.

A restaurant expense is a recurring payment. These expenses include food costs, payroll, utilities, marketing, and rent. On the other hand, a restaurant’s costs are considered one-time expenses, such as furniture, kitchen equipment, and dishes. These costs will fluctuate depending on several factors, such as the type of equipment, renovation projects, and other expenses needed to open the business. In general, the most common restaurant costs and expenses in South Jersey include:

  • Commercial space – leases or mortgages
  • Renovations and decor – decorations and new construction
  • Kitchen supplies and equipment – cooking equipment, bar accessories, and tableware
  • Restaurant technology – point of sale (POS) equipment
  • Licenses and permits – food service, liquor license, and food handling permits
  • Marketing – restaurant’s website design, advertising, and logo design

 

 

Fixed Expenses for a New Restaurant

Fixed expenses rarely change, making them easier to work into your budget. All restaurants need to pay for their commercial spaces. Your rent or mortgage costs are unlikely to change from month to month.

Along with that, license fees do have an initial cost. In many cases, you will need to renew them annually, but these expenses will not change every month.

Remember that insurance coverage? You need it to run your business and protect you from any liabilities. There are several insurance policies to consider, such as product liability, liquor liability, workers’ compensation policies, and loss of income insurance. All of these expenses have a set cost for the month or year. Always review your insurance to see whether you have the right one for your business needs.

Marketing is another fixed expense. If you are paying for ads or working with a marketing company, you probably have a set amount for your monthly expenses. Unless you have a monthly contract with an advertising firm, these expenses should have a set cost.

 

 

Variable Expenses for New Jersey Restaurants

Now that you understand those fixed expenses, look at your variable ones. These expenses are harder to project because they fluctuate from month to month. The cost of goods sold (COGS) is the cost of the materials and ingredients used to make a dish. Depending on your menu, these costs can vary.

Utility bills are known to fluctuate. Huge usage of water and electricity can send your monthly utilities bills skyrocketing. Remember that a big commercial space will require more electricity, water, and gas.

Payment processing fees can sneak up on any restaurant owner. These processing fees will vary depending on the payment provider. These fees are based on a percentage of the transaction, and they can include interchange, card brand, and processor fees.

 

 

Mixed Expenses

Finally, there are always mixed expenses for your restaurant. These expenses can be both variable and fixed. For many South Jersey restaurants, labor costs are a big concern. Whether the employees have a salary or hourly wage, the labor cost can fluctuate. New restaurant owners need to make a budget and keep those labor costs under control. If you are not careful, you could struggle to pay your staff.

It takes a lot to start a new restaurant in South Jersey. Hopefully, these tips can get your business off on the right foot.

When you need an accountant for your small business, contact TMD Accounting. We have over 40 years of experience helping individuals and business owners throughout Gloucester County. Our family-owned business offers a flexible, reliable, and affordable solution for your tax and payroll needs. Schedule a consultation by calling 856-228-2205.

 

Do I Need to Keep Every Receipt for My Bookkeeper?

Do I Need to Keep Every Receipt for My Bookkeeper?

Like most business owners, you are keeping receipts for tax time or bookkeeping purposes. Do you really need to hold on to them? They are valuable, but you don’t have to keep every receipt. Yes, your bookkeeper needs documentation, but there are better ways to organize your receipts. Here are a few tips about tracking those expenses for your business.

 

 

A Quick Look at Tax Deductions

You want to keep a document trail for your taxes. If you have struggled to save every receipt from the past year, you can relax. The IRS does require receipts for your business expenses, but you don’t need physical copies of them.

Why do business owners keep those receipts? Tax deductions. Your business is considered a taxpayer by the IRS. Every year, you must file income tax returns and pay any taxes owed to the IRS. That amount is determined based on how much your business earns minus any business expenses or tax deductions.

You can reduce the tax burden by deducting qualified expenses and purchases from your business earnings. For example, if you bought a new computer for your business, you can subtract that amount from your earnings. All of those deductions will reduce your income. In turn, that lowers your tax obligations to the IRS.

Business owners can take a tax deduction in various areas, provided with the required documentation. Some deductible expenses can include:

  • Office furniture
  • Technology
  • Business travel expenses
  • Meal expenses
  • Marketing expenses
  • Contractor fees

A receipt is not enough proof that your expense is a legitimate business one. If you want to deduct these expenses from your taxes, they must be “ordinary, necessary, and reasonable.” Taking a tropical vacation is usually not a business expense. Writing it off as a deduction might raise some eyebrows from the IRS.

 

 

What Is a Business Tax Receipt?

If you want to include those business expenses as a deduction on your tax return, the IRS requires you to have supporting documentation. This documentation will show how much you paid, what you bought, and when you purchased it.

Why keep receipts? If the IRS has questions about your tax return or you get audited, those records can help prove that you needed the expenses for your business.

A few individuals confuse these receipts with a business tax receipt. These are two different types of documents. A business tax receipt is legal permission to issue sales tax in a particular state, while a business tax receipt is your documentation of a business-related expense. They both have the same name but two different purposes.

 

 

What Business Receipts Do I Need To Keep?

When you need supporting documents, it can be a broad category. Remember, you need to have itemized proof of those business purchases. In many cases, this is a printed receipt, but it can also include:

  • Bank statements
  • Credit card statements
  • Canceled checks
  • Itemized invoices of digital payments
  • Real estate closing statements

While you need to prove your business expenses, you also must track your income. Always keep those receipts of income, such as:

  • Receipt stubs
  • Cash register receipts
  • Invoices with digital payments
  • Canceled or cleared checks
  • IRS 1099 forms
  • Bank statements

 

 

How Long Should I Keep Business Receipts?

You need to keep those business receipts for three years in most cases. In some situations, the IRS might require you to hold on to those receipts for six years. Always keep records on hand if you have underpaid your taxes by more than 25 percent. While you can always download documents and statements from an online source, many financial institutions will not keep them after a year or two.

You can always store receipts by digitally downloading PDFs and saving them to the folder for the month and year. Remember to back up that folder and keep it in a place where you can access it for several years to come. With an organized filing system, your bookkeeper will thank you when it comes time for taxes.

 

 

Managing Business Tax Receipts

An audit is very unlikely, but they do happen. In that event, you must have all documentation on hand. While small business accounting services can help with those bookkeeping tasks, you should take steps to manage the receipts.

Think about storing those documents and receipts with a digital app. You can track all of that required information for the IRS through your credit card statements, digital bank statements, online banking records, and purchase history. Paper receipts for large cash purchases don’t have to be stored as a physical document. Most financial apps allow you to snap a picture of the paper receipt and store it in a document tracking system.

According to the IRS, digital copies are sufficient proof to document your tax deductions. If you want to store your records, download those digital statements and keep them in organized folders. When it comes to tax time, you can locate all relevant paperwork for your business.

You will want to keep a close eye on cash and reimbursements. For most business owners, cash purchases can be harder to track. When you pay with cash, you will not have a generated purchase statement. It is up to you to keep the physical receipt of the purchase. Large cash expenditures should come with an itemized receipt for tax purposes.

It is not uncommon for business owners to use a personal credit card or bank account to make a business purchase. After the transaction, the owners usually pay themselves. That is known as a reimbursement. If you want to track your reimbursements, keep all of your receipts. You will need to show the original payment method and proof that you paid yourself for the purchase.

 

 

Keep Track of Your Expenses

With these tips, you can manage and save all receipts for your bookkeeper. As long as you have proof of your purchases, you don’t need to keep boxes of physical receipts for tax time.

Need an accountant for your small business? Reach out to TMD Accounting. We have been helping the Gloucester County community with their tax and payroll needs for over 40 years. You can schedule a consultation by calling 856-228-2205.

How Long to Keep Your Business Receipts

How Long to Keep Your Business Receipts

When you prepare your business tax returns and claim deductions, you likely understand the importance of gathering your receipts to substantiate the expenses you claim. While you likely know that you need to keep copies of your returns for several years, you might wonder how long you should also keep your receipts. Here is what you need to know about keeping copies of your receipts from our accountants at TMD Accounting.

 

 

What is Considered a Business Receipt?

Whenever you conduct a business transaction, you are either given a receipt or give one to the other party. Receipts normally show the items or services purchased, their purchase date, and the cost of each item or service.

Receipts are important for your business. They give your customers proof that they bought their items and own them. They also include information that can help you resolve issues your customers might have by allowing them to make returns or exchanges. Finally, business receipts are important for tax reasons. They help to substantiate your transaction history and support the information you report on your business tax returns.

 

 

How Long to Keep Business Receipts

Trying to figure out how long you should keep copies of your business receipts is not difficult. It’s best to be safe and keep them for a long time just in case you are audited. In general, you should keep copies of your receipts for as long as you might be audited. The statute of limitations for audits is generally three years, but it can be extended to six years if the IRS finds you have made substantial errors on your returns. You should keep your receipts for at least three years to substantiate your expenses and your sales in case you are audited.

Some other reasons why you should keep your receipts for a longer time include the following:

  • If you didn’t file a return
  • If you claimed deductions for worthless securities or bad debt
  • If you underreported income on your return

You should speak to an accountant if you are uncertain about how long you should keep your receipts. If you are concerned about the ink on receipts fading away, you can always scan them into your computer and store them electronically or take digital pictures of your receipts.

 

 

Exceptions to the Rule

The thought of keeping every last receipt might seem overwhelming. However, the IRS has stated that you are not required to save every single receipt for your business.

Some of the types of receipts you don’t need to keep include the following:

  • Expenses under $75 unless for lodging
  • Transportation costs for which receipts aren’t available

If you claim expenses on your tax return for items under $75, you should still specify the expense’s date, amount, purpose, and location.

 

 

Why You Should Keep Business Receipts

Keeping track of business receipts and organizing your paperwork can be a hassle. However, saving your business receipts helps to keep your business’s books current and accurate. Even though the thought of keeping your receipts for three to six years might seem like an overwhelming amount of paperwork to save, you can take photos and store them in digital form. Business receipts can help your business by providing the following benefits:

  • Ease the preparation for an audit
  • Substantiate the information you have reported on your tax returns
  • Make it easier to balance your books and maintain their accuracy
  • Help you to identify all deductions for which your business might be eligible

If you receive a notice from the IRS of its intent to audit you, having your receipts for the targeted return can help you prepare. During an audit, the auditor will look for inconsistencies in your tax return. If you do not have business receipts, it is harder to show the auditor that the information on your return is accurate. You should always keep records to substantiate your tax returns in case you are audited.

Saving your receipts can also help you when you are reconciling your books and your accounts. If you do not have receipts, your books might be off. Record your receipts on a regular basis to maintain the accuracy of your books. Add the information from your receipts in your books as soon as possible so that you can have a realistic financial snapshot of how your business is doing.

 

 

Find an Accountant for Your Small Business

Saving your receipts does not have to be a hassle but should instead be a routine part of your business operations. If you can make a habit of taking a quick picture of your receipts at the time you receive them and uploading the photos into your accounting software, the process can be much simpler. For help with small business accounting services, contact TMD Accounting today by calling us at 1-856-228-2205.

What If I Get An IRS Tax Audit And I Have No Receipts?

What If I Get An IRS Tax Audit And I Have No Receipts?

Receiving a notice of audit can inflict fear on any small business owner. It can be even worse if you receive an audit notice and do not have any receipts to support the deductions you have claimed for your business. If you are being audited and do not have receipts, there are some ways you can reconstruct your records to support your expense deductions. Here is what you need to know from our tax professionals at TMD Accounting.

 

 

What is an Audit?

Taxpayers have the responsibility to file returns and pay taxes to the IRS each year. They can also write off work-related expenses to offset a portion of their taxes. When the IRS reviews the deductions taxpayers have claimed and the taxes they have paid as a result, the agency sometimes finds some missing or unclear reporting of income or itemized deductions it believes warrant additional scrutiny. When the IRS follows up on these types of issues through a formal inquiry, the process is called an audit.

In most cases, the IRS will send an audit notice to the taxpayer within seven months of when the tax return was filed. However, the agency can send a notice within three years of the return’s filing date. The notice always comes in writing in a letter and not via a phone call. In the letter, the IRS will inform the taxpayer that it intends to conduct an audit and will ask for specific types of documentation for the taxpayer to provide within 30 days of the notice. If you have received an audit notice but need more time to organize your materials, you can request an extension of 30 days.

 

 

What To Do If You Don’t Have Receipts

Receiving an IRS notice that you have been chosen for an audit might be concerning especially if you have missing receipts. However, the IRS might allow you to substantiate some of your expenses in other ways. You will only need to present evidence that the business expense deductions you claimed were valid. If you do not have receipts, you will need to reconstruct a history of your expenses.

It is a better idea to recreate your business’s expenses at the time you are preparing your taxes when you do not have receipts than to wait until you receive an audit notice. Don’t base your deductions on an estimate to ensure that the expenses you deduct can be substantiated if you are chosen for an audit later.

 

 

How to Reconstruct Records For The IRS

It is important to get started immediately to reconstruct your expenses for the audited tax year when you receive an audit notice. It can take some time to recreate your expenses, and starting immediately can help you meet the response deadline.

You can reconstruct your records or provide a good explanation of your deductions. If the IRS rules against you, you can file an appeal. You might also have to argue against an assessment of penalties by presenting facts about how you tried to comply. In many cases, having no records can result in a 20% penalty for negligence.

Follow the tips below to reconstruct your business’s records in response to an audit:

  •  Review your credit card and bank statements – Checking your credit card and bank statements can help you identify different expenses you have paid. They can also be a substitute if you have lost your receipts.
  • Ask for copies from suppliers and vendors – Suppliers and vendors might have duplicate copies of your invoices and receipts. You can ask them if they can provide you with copies.
  • Review your appointment books – If you have claimed travel and meal expenses, you can look at your old appointment books to find relevant information about your travel, its frequency, and the number of clients for whom you provided services.
  • Look at your cell phone records – Your cell phone records might help you to establish your service dates and help to reconstruct your business expenses.
  • Use online map tools to reconstruct mileage – Use map tools online to substantiate your mileage claims. Do not estimate the number of miles traveled per week and multiply it by 52 to arrive at your mileage deduction. Instead, take into account holidays and other periods during which you did not travel for work.

If you estimate your expenses in a different way than the IRS, make sure to draft a declaration and sign it under oath.

 

 

About The Cohan Rule

Lost and missing receipts is a very common issue. The United States Court of Appeals for the Second Circuit created a rule in 1930 about how the IRS should move forward in those types of cases in its decision in Cohan v. Commissioner, 39 F.2d 540 (1930). In the case, George M. Cohan, a Broadway actor, claimed business deductions without documentation. He claimed that he didn’t have enough time to document all of his entertainment and travel expenses that he deducted on his income tax return. The IRS tried to disallow all of his deductions, but the court found that it was clear that he had incurred some expenses even if the exact amounts could not be substantiated. The court then outlined the Cohan rule through which taxpayers without receipts can still claim reasonable and credible expenses.

If you don’t have receipts, you will not be allowed to claim all of your expenses, however. Instead, the IRS will only allow you to deduct the minimum standard amount for the service or item based on its calculations. The U.S. Tax Court has limited the use of the Cohan rule in several decisions and has stated that taxpayers should supply information to support their expenses.

 

 

What Happens After The Audit?

After your audit, one of the following three things will occur:

  • Your audit ends with no changes if the IRS substantiates your return.
  • You agree to the IRS’s proposed changes and pay what you owe or set up an installment agreement.
  • You disagree with the IRS’s proposed changes and either appeal the decision or ask for a conference with a manager at the IRS.

Unless the IRS determines that you engaged in tax evasion or tax fraud, you don’t need to worry about going to jail. In most cases, you might owe some taxes and have to pay them.

 

 

Find an Accountant for Your Small Business

If you have received a notice of an audit, you should talk to TMD Accounting about our small business accounting services. Call us today at 1-856-228-2205 to request a consultation.

How to Manage Daily Restaurant Finances

How to Manage Daily Restaurant Finances

With fantastic staff members, world-class dishes, and acclaimed drinks, you can deliver an amazing dining experience to your customers. It might seem glamorous, but plenty of hard work goes on behind the scenes. The restaurant industry is challenging. Managing your finances is vital to running a successful business. If you don’t control that, it could spell disaster for your restaurant. Here are a few tips for managing the daily finances of your restaurant.

 

Understand Your Costs

Managing a restaurant is complex. The first thing you want to do is understand all of your costs. Those costs cover everything from labor to raw materials. You will also have to factor in additional expenses, such as utilities, rent, and equipment rental costs. With all of these expenses in mind, you can create a budget and effectively manage your finances.

Some costs are constantly changing. You need to be aware of variable and fixed costs. Variable costs can vary, but you can control them. For example, food is a variable cost. If the costs are too high, you can always go with another supplier or switch out menu items.

Fixed cost is a little different. These expenses will not change as you operate the business. Fixed costs include the payroll and overhead. Rent and your employees’ salaries will remain the same, whether there are customers or not.

With that in mind, you can start to budget your monthly costs. While these expenses can change over time, you have a basis to manage your finances.

 

 

How To Manage Daily Restaurant Expenses

Now that you have a basic understanding of your finances, you can do certain things to track those costs. Think about using small business accounting services to handle these tasks for you. With that, you can focus on other aspects of your business.

Whether you use a professional or not, here are some of the best ways to manage these finances.

 

1 – Budget Your Expenses

If you want to manage your finances, you need to budget them. Since you already know your fixed and variable costs, you can work around those figures to round out the budget. Make sure to budget all of your money and keep track of every expenditure. With a solid budget in place, you will know how much to spend on food, labor, and other essentials for your restaurant.

 

2 – Maintain a Cash Flow Statement

Along with a budget, a cash flow statement is equally important. With these statements, you can see how those daily activities impact the amount of cash for your business. A cash flow statement will tell you whether money is going out or coming into your business. Plus, a cash flow statement gives you the amount of cash on hand. Consider this statement to be a health checkup for your restaurant. A cash flow statement can give you an idea about where your business stands so that you can make plans for the future. Additionally, you will know where you can spend more money, such as hiring more employees. These statements are essential because cash flow will always affect the budget for your restaurant.

 

3 – Keep Payroll and Food Costs Under Control

Payroll and food costs can be hard for many business owners to control. Like cash flow, you need to be vigilant about these two parts of your expenses. Managing the staff’s schedules can be challenging. You need to have plenty of people on hand to make a memorable experience for your customers. However, you don’t want too many employees standing around with no business.

The same can be said for food costs. You want to have plenty of items to create your amazing dishes. Without customers, all of that food can go to waste. While it can be tricky for even seasoned owners to manage these costs, take a look at your daily reports. They can help you determine whether you need additional food or workers for the upcoming week.

 

4 – Check Your Reports Daily

Always be in the habit of managing all of your accounts on a daily basis. With that, you can clearly understand your expenses and sales. You will be able to track whether the restaurant is performing well or struggling for the day. If you notice a pattern in your sales, take a deeper look. You might be able to find a few areas to cut to help perform better with sales. You will not find these answers in a weekly or monthly report. You need to remain watchful and check those reports every single day.

In addition to that, you can plan and project your sales while cutting down on unnecessary expenses. Think of the daily sales report as a report card. It is not a final grade but a starting point where you can improve to help break even or turn a profit.

 

 

How To Break Even With Your Restaurant

When your expenses match the sales, that is known as the break-even point. At this stage, you are running a successful business. Before reaching the break-even point, you need to project all those costs in your restaurant’s budget. Since restaurants are all different, they will have different break-even points.

A quick-service restaurant will usually take three to six months to reach that level. Casual dining establishments can expect to reach the break-even point at 18 months. Finally, a fine dining restaurant breaks even at the two-year mark.

You can prepare for those expenses when you know the average break-even point. You never want to run out of money. When that happens, you cannot pay vendors, employees, or rent. By understanding the break-even point, you can plan for these slow times and keep track of your goals.

Managing a restaurant’s finances is tricky. With these tips, you can get a clearer view of your restaurant’s financial picture.

 

 

Need an Accountant for your Small Business?

At TMD Accounting, we have served the Gloucester County community for over 40 years. We are a flexible, affordable, and reliable solution to help manage your bookkeeping and payroll services. Schedule a consultation by calling 1-856-228-2205.

 

How Far Back Can You Get Audited?

How Far Back Can You Get Audited?

Many small business owners find tax season to be stressful. Filing taxes can be even more stressful when you consider the potential of an audit. The Internal Revenue Service (IRS) announced in late 2020 that it planned to increase the percentage of small business audits by 50%. While your chances of being audited are still relatively low, it is still a good idea to ensure that your books are in order to reduce your risks in case you are selected. Here is some information from TMD Accounting about how far back the IRS can go if it decides to audit your business.

 

 

How Far Back Can The IRS Audit You?

The general statute of limitations for an IRS audit is three years under 26 U.S. Code § 6501, which means that the IRS can audit your tax returns for the most recent three years. However, there are multiple exceptions to this general rule. For example, if an auditor determines that you have made substantial errors on your returns, they can add more years to the scope of the audit. According to the IRS, it will generally not go back more than six years unless the agency suspects that you might have committed fraud or have failed to file your required tax returns.

 

 

Statute of Limitations on IRS Tax Audits

As previously noted, the IRS generally has a three-year statute of limitations for tax audits from the date you file your return or the date that it is due, whichever is later. For example, if you file your tax return early, the statute of limitations will run from the due date rather than your filing date.

If you substantially understated your income, the statute of limitations for an audit is six years. A substantial understatement of income occurs when you omit 25% or more of your income. If you failed to file a tax return, the IRS will not have a statute of limitations to audit you since the time period will not start running until a return is filed. Similarly, if you filed a fraudulent return, the IRS can go back and audit it regardless of how long ago it was.

 

 

What Triggers an Audit?

In a majority of cases, the IRS chooses returns to audit randomly. However, the following red flags can increase the likelihood that you will be audited:

  • Failing to report all income
  • Being a high-income earner
  • Claiming a large charitable deduction
  • Making calculation errors
  • Claiming excessive deductions
  • Filing schedule C as a self-employed taxpayer
  • Claiming the home office deduction
  • Claiming deductions for business travel, meals, and entertainment
  • Claiming that a hobby is a business
  • Claiming you used a personal vehicle 100% for your business
  • Claiming the Earned Income Tax Credit (EITC)

The IRS distinguishes between businesses and hobbies by using a standard for profitability. If your business was profitable for three out of the past five years, the IRS will likely consider it to be legitimate. If your business claimed losses for three of those years, the IRS might consider your business a hobby and select you for an audit.

 

 

Tips For Avoiding Tax Audits

Here are some tips for avoiding a tax audit.

  1. Avoid Reporting Net Annual Losses

Reporting small net annual losses for your business can trigger an audit. While you have to report all of your income, you are not required to report all of your expenses. It might be a good idea to leave some of your expenses out if doing so will allow you to report a small net profit.

  1. Specify Your Expenses

As much as possible, avoid categorizing your expenses under “other expenses” on your return. Instead, explicitly list each expense by itemizing them.

  1. Provide Additional Detail as Needed

If you had a major drop or increase in a category of expenses, you should attach additional paperwork to your return to explain what happened in detail. This might help to answer questions an IRS agent might have about the sudden changes if your return is triggered.

  1. File Your Returns on Time

Filing your returns and paying your taxes on time shows a history of compliance. This might help to avoid a potential audit. You should also try to avoid amending your returns to help establish your history of compliance.

  1. Double-check Your Paperwork and Math

Make sure that the numbers on your forms match what you report on your return. You should also double-check your calculations to ensure that you have not made any math errors. The numbers you use for deductions should also vary from year to year. Don’t claim the same numbers for your deductions from year to year.

  1. Avoid Claiming Excessive Deductions

Don’t claim excessive deductions by overestimating your donations, meals, travel, or home office expenses. If you claim excessive amounts on your deductions, your return could be triggered for an audit. Similarly, claiming many deductions you haven’t claimed before can also make it likelier that your business return will be audited.

  1. Don’t Leave Blanks On Your Tax Form

You should answer every question on your tax form, including those for which your answer is $0. Leaving blanks could result in an oversight that triggers an audit.

 

 

How Do I Find an Accountant for My Small Business?

Working with a qualified accountant to prepare your business tax returns can reduce your chances of being audited since your returns should be fully accurate. While there will still be a chance that the IRS will select your business’s tax returns for an audit, having the help of the small business accounting services at TMD Accounting can help you to achieve a better outcome if you are audited. Call us today for a consultation at 1-856-228-2205.

 

Ultimate Guide to Car Tax Deductions and Mileage

Ultimate Guide to Car Tax Deductions and Mileage

If you use your vehicle for business purposes as a part of conducting your small business, you can claim vehicle-related tax deductions. While you might not give tax filing season much thought throughout the year, you can reduce your business’s tax liability and maximize the deductions you can claim by keeping accurate records year-round. Keeping records about your business’s use of your vehicle can help you potentially save hundreds of dollars through the mileage tax deduction. Here is some information about the mileage tax deduction, how to track mileage, and whether you might qualify to claim it.

 

What Is the Mileage Tax Deduction? How Does It Work?

The mileage tax deduction is a deduction that can be claimed on your tax return as long as you use your vehicle for business purposes and meet certain conditions. You can deduct your mileage if you drive your vehicle for qualified business purposes.

The Internal Revenue Service (IRS) sets the standard rate each year. In 2022, the mileage rate is $0.58 per mile. You calculate the deduction by multiplying the rate by the qualified miles you drove for business purposes. You can also choose to use your actual expenses instead of keeping logs of your mileage. We’ll discuss this more below.

 

Who Can Deduct Car Expenses?

You do not have to use your vehicle all of the time for your business to claim the mileage tax deduction. You can claim the deduction for trips you take to purchase supplies for your home office and other similar trips even if you primarily work from home. However, commuting to and from your home and a separate office does not count, and you can’t claim those miles. If you work from a home office, you can count the mileage between your home and any work-related errands or meetings.

 

Which Car Expenses Can You Write Off?

There are expenses you can deduct only when you use the actual expense method and some that you can deduct with either method. If you use the actual expense method, it will replace the mileage deduction you would claim if you used the standard mileage method. You can write off the following expenses with the actual expense method:

  • Fuel
  • Vehicle lease payments
  • Auto insurance
  • Vehicle maintenance costs
  • Depreciation

You can also write off the following expenses under either the standard mileage or the actual expense method:

  • Tolls
  • Fees from the Department of Motor Vehicles
  • Parking
  • Car washes

If you use the actual expense method, you will have to calculate the percentage that you used your car for business purposes. Estimate how much of your mileage on your vehicle is used for business purposes instead of commuting or personal tasks. You don’t have to be exact and can guesstimate.

 

How to Write Off Car Expenses: Actual Method vs Mileage Method

You can either use the standard mileage or the actual expense method. To use the standard mileage method, you can keep a vehicle mileage log in your vehicle or on your smartphone. With this method, track every mile you drive for business purposes and multiply the total by the standard IRS mileage rate.

With the actual expense record, you won’t have to track every mile you drive. You will instead just determine the business-use percentage of your vehicle and your vehicle-related expenses and write off the percentage you can allocate to your business use.

The actual expense method is simpler for most people since they don’t have to keep logs of their mileage. In most cases, the actual expense method will also result in a larger deduction. However, if the following situations apply to you, the standard mileage method might be a better option:

  • You drive more than 30,000 miles per year for work
  • You have a gas-efficient, older vehicle and won’t benefit from depreciation
  • You have an electric vehicle and do not have gasoline expenses

Even if you do have an electric car, you might still benefit from the actual expense method if your vehicle is fairly new since electric vehicles are generally expensive to purchase.

 

Find an Accountant for My Small Business

Calculating the mileage tax deduction can be complicated whether you are using the standard mileage method or the actual expense method. In addition to the mileage tax deduction, there are also other deductions you might be eligible to claim for your business. The small business accounting services from TMD Accounting can help you to reduce your tax liability while maximizing your deductions. Contact us for an appointment today by calling us at 1-856-228-2205.

What Information Does My Accountant Need To Prepare My Business Tax Return?

What Information Does My Accountant Need To Prepare My Business Tax Return?

As a small business owner, knowing what you need to gather to file your business tax returns can seem difficult. Keeping accurate records throughout the year can go a long way to helping your business at tax time. If you are a new small business owner, filing taxes for your business for the first time can be overwhelming. Changes in the state and federal tax laws can also make tax filing even more daunting for business owners who wait until the last minute to pay taxes and then have to scramble to gather all of their receipts, calculate business income and profit and loss statements, and figure out the transactions your business has conducted during the past year. Here is some information from our accounting professionals here at TMD Accounting about tax filing for small businesses and the documents your accountant will need.

 

Why You Should Work With an Accountant

Many small business owners don’t have a good understanding of business taxes and finances, making it likelier that they will make mistakes when they file their business tax returns. You might also miss some business tax deductions that could reduce the amount your business might have to pay. It will likely be in your interests to retain an accountant to help with your business taxes. An accountant can help you identify the documents and information you will need to file your return and pay your taxes so that you can focus your attention on your business’s day-to-day operations.

Working with an accountant will cost less if you gather as much information as you can before you meet with the accounting firm. Since businesses differ from each other, so will the information that you might need to bring with you to your accountant’s office. However, some general information your accountant will need includes information about your business’s profits and losses, gross income, records of goods your business sold, client invoices, sales records, salaries, receipts, and your business’s tax return from last year if applicable. While you can try to file your business taxes yourself, your business might end up paying significantly more than you should if you instead work with an accountant who can identify credits and deductions that your business can claim.

 

Tax Filing Dates For Businesses

Businesses have different tax filing deadlines based on how their businesses are structured. They also have to pay different taxes and file different forms based on their business entity whether their business is structured as a limited liability company, sole proprietorship, S corporation, partnership, or C corporation.

You might need to pay the following five types of taxes for small business owners:

  • Self-employment tax
  • Employment tax
  • Excise tax
  • Estimated tax
  • Income tax

Once you have calculated your earnings, deductions, and credits, the following forms and dates apply to the different business structures:

  • Sole proprietorship or single-member LLC- Report business profits and losses on Schedule C filed with the business owner’s personal income tax return on April 15 of each year
  • Multi-member LLC- Use Form 1065 and Schedule K-1 for each member and file by March 15 each year
  • Partnership – Form 1065 and Schedule K-1 for each partner due either on March 15 or on the 15th of the third month following the end of the business’s tax year
  • C corporation – Form 1120 due on April 15 or four months following the end of the corporation’s tax year
  • S corporation – Form 1120 S and Schedule K-1 for all shareholders due by March 15 or three months following the end of the company’s tax year
  • Self-employed – Form 1040-ES each quarter to pay quarterly taxes

 

What Documents Do I Need to File Business Taxes?

Instead of waiting until the last minute and feeling stressed out, you should gather the documents your accountant will need well in advance. With some basic organization and preparation, you can make filing your business taxes less of a hassle. Gather the following documents for your accountant:

  • Identification information – Social Security number and identification card (driver’s license, state-issued ID, military ID, green card, passport, or etc.)
  • Past year’s tax return if applicable
  • Profit and loss statements
  • Gross receipts from services or sales
  • Accounts receivable if using the accrual accounting method
  • 1099-INT for business accounts or business bank statements
  • Information about business assets
  • Receipts
  • Beginning and ending inventory amounts
  • Inventory purchases
  • Advertising expenses
  • Phone, computer, and internet expenses
  • Travel expenses for business travel, including mileage logs and maintenance records for business use of a vehicle locally and airfare and hotel expenses for travel out of the area
  • Contract labor expenses for amounts paid to subcontractors
  • Fees and commissions
  • Business insurance
  • Office lease expenses
  • 1098-T to calculate home office deduction
  • Payroll expenses
  • Employee benefits paid for employees
  • Estimated taxes paid

 

Additional Tips About Filing Taxes

If you work with your accountant throughout the year, filing your business taxes will be much easier. You can send your accountant your business’s bookkeeping records for reconciliation throughout the year so that you will have a better idea of where your business’s finances stand. Your accountant can also advise you about the types of records to keep and ways you can claim deductions you might not be aware of. The key is to keep accurate records, save receipts, and keep your business’s financial records organized.

 

Get Help From an Accountant for Your Small Business

When you are trying to run your business, thinking about filing business taxes might seem overwhelming. TMD Accounting’s small business accounting services can help your business to file accurate and on-time business tax returns. To learn more, contact us today at 1-856-228-2205.

10 Steps To Effective Restaurant Accounting

10 Steps To Effective Restaurant Accounting

A successful restaurant business needs up-to-date accounting records. These records can help you assess the state of your restaurant’s finances and ensure profitability for years to come. Tracking your finances can be challenging, especially if you are not diligent about keeping records. If you are a restaurant owner, here are 10 tips to be more efficient with your accounting.

 

Create an Effective Accounting Strategy

As you already know, accounting is complicated for many business owners. You have plenty of work on your plate. Adding in accounting responsibilities can be a hassle. You might want to consider hiring small business accounting services for your restaurant. However, you don’t need an accountant to implement these tips into your financial strategy.

 

10 – Make a List of Your Expenses

You will want to perform a general accounting analysis of your finances. Take an in-depth look at your business. Make sure to list all of your suppliers and any other expenses you may have for the month. You always want to examine your restaurant’s profits and losses. With those numbers, you can create an effective strategy for your accounting.

 

9 – Look at Daily Sales and Costs

Restaurants can lose money when they don’t track daily sales and expenses. You need to have control of everything that leaves and enters your business. It can be easy to skip a day and forget to enter something in the books, but that is a big mistake. You don’t want to have any big surprises at the end of the month. By working with a reliable point of sale (POS) system, you can access all of those variable and fixed expenses. Many of these systems filter the information by date, time, and items. Plus, you can often analyze that data from a mobile device or computer.

 

8 – Keep the Payroll Updated

Payroll is more than handing out checks at the end of the week. You will have to deal with all of the legal responsibilities of paying employees. Make sure to prepare your payroll before the pay period. Being organized can help prevent any issues. You want to ensure that deductions, hours, and payment dates are all correct in your system. While you could handle this task on your own, some programs will take those numbers and plug them into the right spots. With that, you can be sure that all of the information is correct for your restaurant.

 

7- Set a Schedule

It is essential to keep a schedule. You never want to wait until the end of the month to review your finances and run those reports. Every week, take some time to schedule payments, evaluate your restaurant’s performance, and review any accounting tasks. As a business owner, you always want to respect this schedule. Letting anything slip through the cracks can lead to a financial headache.

 

6 – Digitize Your Invoices

In a restaurant, you are working with fresh ingredients. Unfortunately, the costs of raw materials can change throughout the year. Keep in mind that there will constantly be fluctuating prices. Digitizing your invoices can help you track those costs, especially when you work with several suppliers. If you already have a POS, the process is as simple as taking a photo and uploading it to the system. With that, you will know whether your food costs are rising throughout the month.

 

5 – Choose the Best Accounting Program

All restaurants are not the same. For that reason, you want to choose an accounting system that works for your business. There are several accounting programs on the market. Find one that can adapt to the size and needs of your restaurant. At the minimum, choose one that can assist with invoicing and payroll. If you need help selecting the right system, reach out to your accountant for some suggestions.

 

4 – Outsource the Accounting

While accounting software and POS can help you, it might be time to outsource those responsibilities. An accounting expert will be able to analyze the restaurant’s financial health. With their assistance, payroll, taxes, and even financial management will be in the hands of a professional. When it comes time to choose someone, make sure that they have experience with businesses in your industry.

 

3 – Don’t Wait Until the Last Minute

As you already know, you need to have constant control over your restaurant’s finances. Constantly monitor your expenses and costs throughout the week. With that information, you can compare your sales against other periods in the month or year. Waiting at the last minute to analyze data can hurt your finances. You don’t want to discover a mistake that could cost hundreds of dollars to fix.

 

2 – Review Accounting on an Accrual Basis

You never want anything to get lost. For that reason, stick to accrual-based accounting. Evaluate the data when you receive or spend income. Accrual accounting gives you a more accurate picture of your actual expenses and income.

 

1 – Always Avoid Cash Accounting

While cash accounting is the simplest form of accounting, it is not an accurate method to keep track of your financial activities. Cash accounting does not cover any of those delays involving payment plans or credit accounts. With that, you never have a complete picture of your expenses and income. Cash accounting is easier to manage, but you should avoid it at all costs.

 

 

The Bottom Line

If you want to grow your restaurant, you need to create the right accounting strategy for your business. By understanding your financial picture, you can make decisions for your business. The proper accounting methods allow you to analyze your current sales trends and track all of that valuable data for your restaurant. With these tips, you can efficiently manage all aspects of your restaurant’s accounting.

 

 

Need an Accountant for My Small Business?

If you are ready to take control of your restaurant’s finances, reach out to an experienced accountant. At TMD Accounting, our team has over 40 years of experience helping small businesses in the Gloucester County area. We can assist with taxes, payroll, and other financial management matters. Schedule an appointment by calling 1-856-228-2205.

 

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