Serving Up Savings: Tax Tips for Food Truck Owners
Do you feed hungry customers all around town in your food truck? If so, you're part of the in-demand mobile food industry that is commonly found in major U.S. cities where people are eager to grab a quick bite for a reasonable price.
While making money to cook up tasty treats can be enjoyable, there are lots of federal, state, and local tax rules that apply to running a food truck business. Here at 1-800Accountant, we're happy to offer these handy tax tips and tax deductions to help you save.
6 tax considerations for food truck owners
1. Consider incorporating your food truck business if you currently have a sole proprietorship or partnership
By establishing a formal business entity, such as an LLC, S corporation, or C corporation, you can help cut your self-employment taxes in half in many cases. You can also open your business up to additional corporate tax deductions and other tax-saving strategies.
In addition, maintaining a formal business entity for your food truck endeavor adds a much-desired layer of liability protection to your operation and can give your business more credibility in such a highly-competitive industry.
2. You may be on the hook for collecting sales taxes on the food and beverage orders you take
This sales tax rate often varies from one state to another, so it's imperative to be aware of your specific state's business tax laws.
In fact, such rates may differ between two cities or counties within a state. With all of this variation at play, make sure you properly document each address of where you set up your food truck to help you track where you've been and what you owe to each tax authority.
If you want to learn more about food trucks and sales taxes, check out this article.
3. Choose how you want to deduct the trips you make with your food truck
Because food truck owners are frequently on the go to find the best locations of where the largest groups of hungry customers are, deducting transportation expenses can result in some big tax savings.
You can either deduct actual mileage you drive or actual vehicle expenses of your food truck. However, you cannot deduct both of these amounts.
If you choose to claim mileage as a write-off, remember that the standard mileage rate for 2016 was 54 cents per mile, and 53.5 cents per mile for tax year 2017. You should track your business-related trips in a mileage log.
If you opt to deduct actual vehicle expenses, your deductible amount may include gas, maintenance, oil, and tolls. It's wise to calculate both deduction options to find out which write-off would give you the biggest savings on your taxes.
4. Keep all of your tax requirements and deadlines on a calendar to ensure you fulfill your unique obligations as a business owner
Remember your estimated tax payments, self-employment taxes, and other filings you must complete on a regular basis.
If you have employees who work for you, you're responsible for withholding taxes from these employees' paychecks and submitting these tax amounts to the appropriate tax agencies. Payroll taxes are also part of this process.
5. You can take one-time deductions on expenses, but it's generally smarter to depreciate certain items in your food truck business
Higher-priced items that include your food truck, large appliances, refrigeration, and a generator are just some of the assets in your business that you may choose to depreciate over the course of time rather than deduct only one time for the year in which the item was purchased.
In many cases, items that cost more than $500 should be depreciated over several tax years to achieve the largest possible tax savings.
6. Overcompensating employees can result in a reduction in tax savings
If you have employees and you wish to deduct their pay and benefits, you must provide them with compensation. Keep in mind that it must be paid out for only the actual work they do in their jobs.
The reason for this is that the IRS may take issue with overcompensation of employees, and not all pay and benefits may be deductible if the IRS agent reviewing your tax return determines that this is the case.
Tax deductions for food truck owners
Food truck owners are typically eligible to write off the following business-related expenses when filing their income tax returns with the IRS:
- A food truck or other vehicles you use to transport food supplies, beverages, and other items in your business
- Food supplies you either sell directly or use in the preparation of menu items, i.e. cheese, bread, cold cuts, lettuce, dressing, fruit, vegetables, ice cream, butter, spices, oil, etc.
- Beverages, i.e. milk, fruit juices, lemonade, iced tea, beer, wine, etc.
- Heating appliances, i.e. grills, ovens, toasters, blenders, microwaves, etc.
- Cooling appliances, i.e. refrigerators and freezers
- Cooking supplies, i.e. dishes, pots, pans, spatulas, stirring spoons, measuring cups, gloves, etc.
- Eating and drinking supplies, i.e. plates, bowls, cups, platters, utensils, napkins, paper products, etc.
- Marketing expenses, i.e. paper menus, a website, Google AdWords, social media marketing, Yelp ads, signage or banners for your food truck, etc.
- Location rental fees when applicable to park and set up your food truck for customers
- Employee compensation, i.e. salaries, insurance, retirement accounts, sick leave, vacation pay, bonuses, etc.
- Maintenance expenses to repair either your food truck or any equipment you maintain in the business
- Professional service fees for lawyers, accountants, financial planners, electricians, handymen, truck detailers, etc.
- Depreciation on business property
- Insurance on business property and for liability purposes
A food truck business may seem fairly straightforward in terms of property end expenditures. However, there are plenty of hidden costs and fees that don't always bubble up to the surface when considering any food service enterprise.
Regardless of what type of menu offerings you serve up in your food truck, there are countless tax-saving moves you can make to help keep more of your hard-earned income in your business bank account. The key is to know which methods are out there and, more importantly, the ones that specifically apply to your food truck business.
While being in business certainly opens up a whole new world of taxation, knowing how to navigate your tax obligations can be a huge boon for the ultimate viability of your food truck business.
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