Restaurant Tax Deductions You Shouldn't Miss

Published on January 18, 2025 | 11 min read

Tax season doesn't have to be painful. If you're a restaurant owner, you're sitting on dozens of legitimate deductions that can significantly reduce your tax bill—but only if you know what to claim and how to document it.

This guide walks through the most commonly missed restaurant tax deductions, what records you need, and how to stay audit-proof.

Disclaimer: This article is for informational purposes only and does not constitute tax advice. Consult a qualified CPA or tax professional for guidance specific to your situation.

Why Restaurant Owners Overpay on Taxes

Most restaurant owners fall into one of these traps:

• Poor record-keeping: No receipts = no deduction
• Mixing personal and business expenses: The IRS will disallow everything if you can't separate them
• Not knowing what's deductible: You can't claim what you don't know exists
• Fear of audits: So they under-claim legitimate expenses

The result? Thousands of dollars left on the table every year.

The Golden Rule: Ordinary and Necessary

The IRS allows deductions for expenses that are:

• Ordinary: Common and accepted in the restaurant industry
• Necessary: Helpful and appropriate for your business

If an expense meets both criteria and you have documentation, it's likely deductible.

Top Restaurant Tax Deductions

1. Cost of Goods Sold (COGS)

What it includes:

• Food ingredients (produce, meat, dairy, dry goods)
• Beverages (alcohol, soft drinks, coffee)
• Packaging (to-go containers, bags, boxes)

How to calculate:

COGS = Beginning Inventory + Purchases − Ending Inventory

Documentation needed:

• Vendor invoices
• Monthly inventory counts
• Purchase orders

Pro tip: Do physical inventory counts monthly. Without them, your COGS is a guess, and the IRS may disallow it.

2. Labor Costs

What's deductible:

• Wages and salaries (front-of-house, back-of-house, management)
• Payroll taxes (FICA, unemployment, workers' comp)
• Employee benefits (health insurance, retirement contributions)
• Bonuses and commissions
• Uniforms (if required and not suitable for street wear)

Documentation needed:

• Payroll records
• Tax filings (941, W-2s, 1099s)
• Timesheets

Common mistake: Paying employees "under the table." This is illegal, and you can't deduct it. Plus, you're exposed to massive penalties if caught.

3. Rent and Lease Payments

What's deductible:

• Monthly rent for your restaurant space
• Equipment leases (ovens, POS systems, furniture)
• Storage unit rentals

Documentation needed:

• Lease agreement
• Cancelled checks or bank statements

Special case: If you own the building, you can't deduct rent, but you can deduct mortgage interest, property taxes, and depreciation.

4. Utilities

What's deductible:

• Electricity
• Gas
• Water and sewer
• Trash removal
• Internet and phone (business use only)

Documentation needed:

• Monthly utility bills
• Proof of payment

Pro tip: If you use your personal phone for business, you can deduct the business-use percentage. Keep a log for 30 days to establish the split.

5. Repairs and Maintenance

What's deductible:

• Equipment repairs (ovens, refrigerators, dishwashers)
• Plumbing and HVAC fixes
• Painting and minor renovations
• Pest control
• Cleaning services

Key distinction: Repairs are deductible in the year incurred. Improvements (adding a new kitchen, expanding the dining room) must be depreciated over several years.

Documentation needed:

• Invoices from contractors
• Receipts for parts and materials

6. Supplies

What's deductible:

• Cleaning supplies (detergents, sanitizers, mops)
• Office supplies (paper, pens, printer ink)
• Smallwares (utensils, cutting boards, pans)
• Linens (tablecloths, napkins, aprons)

Documentation needed:

• Receipts from supply vendors
• Credit card statements

7. Marketing and Advertising

What's deductible:

• Social media ads (Facebook, Instagram, Google)
• Print ads (newspapers, magazines, flyers)
• Website hosting and domain registration
• SEO and online marketing services
• Signage and menus
• Promotional events and giveaways

Documentation needed:

• Invoices from ad platforms or agencies
• Receipts for printed materials

Pro tip: Grand opening costs are usually capitalized (spread over time), not deducted immediately. Ongoing marketing is fully deductible.

8. Professional Services

What's deductible:

• Accounting and bookkeeping fees
• Legal fees (contracts, disputes, compliance)
• Payroll processing services
• Consulting fees

Documentation needed:

• Invoices from professionals
• Engagement letters

9. Insurance

What's deductible:

• General liability insurance
• Property insurance
• Workers' compensation
• Business interruption insurance
• Vehicle insurance (for delivery vehicles)

Not deductible: Life insurance on yourself (unless it's key-person insurance for the business).

Documentation needed:

• Insurance policies
• Premium payment receipts

10. Licenses and Permits

What's deductible:

• Business licenses
• Health permits
• Liquor licenses (annual fees; initial purchase may be amortized)
• Food handler certifications

Documentation needed:

• Copies of licenses and permits
• Payment receipts

11. Credit Card Processing Fees

What's deductible:

• Monthly fees from Square, Toast, Stripe, etc.
• Per-transaction fees
• Chargeback fees

Documentation needed:

• Monthly statements from your processor

Pro tip: These fees add up (2–3% of sales). Don't miss them.

12. Vehicle Expenses

What's deductible:

• Mileage for business trips (bank runs, supply pickups, catering deliveries)
• Actual expenses (gas, maintenance, insurance) if you use the actual expense method

Standard mileage rate (2025): Check IRS.gov for the current rate (typically ~65¢/mile).

Documentation needed:

• Mileage log (date, purpose, miles)
• Receipts for gas and repairs (if using actual expense method)

Common mistake: Deducting commuting from home to your restaurant. That's personal, not deductible. Business trips from the restaurant to the bank or vendors are deductible.

13. Meals and Entertainment (Tricky!)

What's deductible:

• Meals with clients, vendors, or business partners: 50% deductible
• Employee meals during work (if provided for the employer's convenience): 50% deductible
• Office snacks and coffee: 50% deductible

Not deductible:

• Entertainment (concerts, sporting events) — eliminated by the Tax Cuts and Jobs Act
• Your own lunch when you're working alone

Documentation needed:

• Receipt
• Note of who attended and the business purpose

14. Depreciation

What's deductible:

• Equipment (ovens, refrigerators, POS systems) — typically 5–7 year depreciation
• Furniture and fixtures — 7 years
• Building improvements — 15–39 years

Section 179 deduction: You can often deduct the full cost of equipment in the year you buy it (up to $1.16M in 2024, indexed annually). Consult your CPA.

Documentation needed:

• Purchase invoices
• Depreciation schedule (your accountant will prepare)

15. Bank Fees and Interest

What's deductible:

• Business loan interest
• Credit card interest (on business cards)
• Bank service fees
• Merchant account fees

Not deductible: Principal payments on loans (only the interest).

Documentation needed:

• Loan statements
• Bank statements

16. Education and Training

What's deductible:

• Culinary courses for chefs
• Management training for you or your managers
• Food safety certifications
• Industry conferences and seminars

Requirement: The training must maintain or improve skills for your current business. Training to enter a new field is not deductible.

Documentation needed:

• Course receipts
• Conference registration
• Travel expenses (if applicable)

17. Software and Subscriptions

What's deductible:

• POS software subscriptions
• Accounting software (QuickBooks, Xero)
• Payroll services
• Inventory management tools
• Online ordering platforms

Documentation needed:

• Subscription invoices
• Credit card statements

18. Uniforms

What's deductible:

• Chef coats, aprons, hats
• Branded shirts with your logo
• Non-slip shoes (if required and not suitable for everyday wear)

Not deductible: Regular street clothes, even if you wear them to work.

Documentation needed:

• Receipts from uniform suppliers

19. Bad Debts

What's deductible:

• Unpaid invoices from catering clients (if you use accrual accounting)
• Bounced checks

Requirement: You must have already included the income in your revenue. Cash-basis taxpayers can't deduct bad debts because they never reported the income.

Documentation needed:

• Invoice
• Proof of collection attempts

20. Startup Costs (First Year Only)

What's deductible:

• Up to $5,000 in startup costs in your first year
• Remainder amortized over 15 years

Examples:

• Market research
• Legal fees to form the business
• Pre-opening advertising

Documentation needed:

• All receipts from before you opened

Commonly Missed Deductions

• Laundry and dry cleaning (for uniforms and linens)
• Merchant cash advance fees (if you use MCA financing)
• Gift cards sold but not redeemed (breakage income; consult CPA)
• Spoilage and waste (part of COGS if tracked)
• Charitable donations (food donations to nonprofits; special rules apply)

What You Can't Deduct

• Personal expenses (your groceries, personal car insurance, home rent)
• Fines and penalties (health code violations, parking tickets)
• Political contributions
• Commuting (home to restaurant)
• Clothing suitable for everyday wear (jeans, sneakers)

Record-Keeping Best Practices

1. Separate Business and Personal

Use a dedicated business bank account and credit card. Never mix.

2. Save Every Receipt

Paper or digital. Use a tool like Restro Manager to capture vendor invoices as images/PDFs automatically.

3. Categorize as You Go

Don't wait until tax time. Assign categories (COGS, Supplies, Utilities) when you record the expense.

4. Keep Records for 7 Years

The IRS can audit up to 3 years back (6 if they suspect underreporting, indefinitely if fraud). Play it safe: keep 7 years.

5. Use Accounting Software

QuickBooks, Xero, or even a simple tool like Restro Manager with invoice capture and P&L tracking. Manual spreadsheets are error-prone.

Audit Red Flags to Avoid

• Round numbers: $5,000 in supplies every month? Looks fake. Use actual amounts.
• 100% business use: Claiming 100% of your car or phone is suspicious unless it's truly dedicated.
• Excessive losses: Losing money year after year triggers scrutiny (hobby loss rules).
• Cash-heavy with no documentation: If you claim $50K in cash expenses with no receipts, expect questions.
• Disproportionate deductions: If your industry average for COGS is 30% and yours is 60%, be ready to explain.

Work with a CPA

A good restaurant CPA will:

• Catch deductions you miss
• Structure your business optimally (LLC, S-Corp, etc.)
• Prepare quarterly estimates so you're not hit with penalties
• Represent you if audited

Cost: $1,500–$5,000/year. ROI: Often 3–10x in tax savings.

Conclusion

Restaurant owners who track expenses diligently and claim every legitimate deduction can save $10,000–$50,000+ annually. The key is documentation, separation of personal and business, and working with a pro.

Start today:

• Open a dedicated business bank account if you haven't
• Set up a system to capture every invoice (digital is best)
• Review this list quarterly and make sure you're tracking everything

Need a simple way to capture and categorize invoices? Try Restro Manager — vendors upload receipts via a secure link, you categorize and approve, and your P&L updates automatically.