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Tax issues for bars and restaurants: avoiding a recipe for trouble

As a bar or restaurant owner, you know that taxes are a big concern. In terms of maintaining a healthy business, staying in compliance with all the requirements may rank right up there with pleasing your customers as a key to success.

In this post, we will use a Q & A format to address some of the frequent questions that arise.

Why is it so hard for business owners to stay on top of collecting and paying so many taxes?

Well, one reason is precisely the fact that there multiple types of taxes on restaurants. One of course is income tax. Most restaurants are Subchapter S business, with pass-through taxation, paying taxes at the individual rate.

But there is also sales tax on restaurants, which Massachusetts somewhat confusingly calls a meals tax. Some cities and towns also have local option taxes on restaurant meals.

And if you have employees, you also are responsible for payroll taxes.

What types of establishments does the meals tax apply to?

If you run a small neighborhood tavern that doesn’t serve much food beyond chips and salsa, you may wonder whether the meals tax applies to you. It’s a natural question to ask in Boston, home to the enduringly popular TV show Cheers.

The short answer is that Massachusetts has very detailed regulations on what constitutes a “meal.” In order to avoid trouble with Massachusetts authorities about meals tax compliance, this is something bar owners should beware of.

Have there been any recent tax evasion cases brought against restaurant owners in Massachusetts?

Yes. Last month, the Department of Justice announced that it had charged the owners of three Boston-area restaurants with tax fraud.

The case concerns allegation of false reports to the IRS of the number of employees, as well as failure to withhold payroll taxes.

 

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