This article was created by FinancePal to help food trucks owners get ahead on their business finances and taxes. FinancePal helps food trucks get the accounting and finance support they need without heavy upfront costs. It’s essentially a finance department in your back pocket.
Let’s be honest; you probably entered the culinary field because you are passionate about making and serving delicious food, not because you are a tax-code expert.
However, getting intimate with the unique food truck tax landscape is crucial for any owner because even the slightest tax misstep can incur fines and fees — the last thing you need in a business of fine margins.
To protect your food truck business from tax penalties — and even save a bit of money on your tax returns — get familiar with the four following food truck tax tips:
1. Document Your Tax Deductions
As a food trucker, there are several significant deductions you can take advantage of to save money on your taxes.
For example, you can deduct miles traveled in your truck. You have two options:
- The standard mileage rate (56 cents per mile in 2021) or
- Use the actual expenses of your truck
In either case, you should track all of your miles and the direct expenses for your truck. Then, at tax time, your accountant can determine which method saves you the most on your taxes. It’s crucial to get this right — choosing the correct method can save you thousands on your taxes.
If you travel with your food truck to a trade show, conference, or festival, you may be able to deduct related food and lodging costs. Remember to document the dates of these events and to keep your receipts. You need to be able to show that these are necessary travel expenses.
2. Business Classification Affects Taxes
When starting a business, many new owners operate as a sole proprietorship.
Sole proprietors still file their personal tax returns using Schedule C (Profit and Loss for Small Business) and Schedule SE (Self Employment Tax).
In addition, many sole proprietors must split their yearly tax liability into quarterly estimated tax payments, made on April 15, June 15, September 15, and January 15, respectively.
The main reason why sole proprietorships are so ubiquitous is that they are easy to set up; it is the default classification when starting a new business with a single owner, and doing so requires no additional paperwork.
There is a significant downside to operating as a sole proprietorship: the lack of protection. If your business falls into debt or gets slapped with a lawsuit, your personal assets are considered fair game for settling liabilities.
Limited Liability Company
Because of the lack of protection sole proprietors face, many food truckers choose to classify their business as a Limited Liability Company, or LLC.
Like sole proprietorships, LLCs file personal tax returns using Schedule C and Schedule SE and typically make quarterly estimated tax payments.
The primary difference between a sole proprietorship and an LLC boils down to protection; an LLC can protect a business owner’s personal assets from being used to settle liabilities such as lawsuits or debt.
In the food truck industry, it is not uncommon to operate with multiple owners. But if this is the case, the default classification is a partnership rather than a sole proprietorship.
Partnerships function in a similar way to sole proprietorships — the main exception being that you must file form 1065 (U.S. Return of Partnership Income).
Much like with sole proprietorships, partnerships leave the owners’ personal assets exposed. To protect your — and your co-owner’s — home and personal accounts, you may want to consider setting up a Limited Liability Company taxed as a partnership.
Other Business Classifications
There are several other classifications — namely, S-Corps and C-Corps — but most food truck owners don’t need to worry about these unless they consistently generate high levels of revenue.
There can be some significant benefits to corporate designation, but there are also additional complexities and costs to contend with.
The main downside to operating as a corporation is that your business taxes get exponentially more complicated. If your business reaches the point where corporate classification makes sense, you will likely need to employ finance professionals to handle your financials.
If you think you have reached the point where you should consider changing your entity type, scheduling a consultation with a CPA can save you thousands — or keep you from making an expensive mistake.
3. Be Smart About Sales Tax
Calculating and collecting sales tax is a nuisance for any food truck operator. Not only is it your responsibility to collect, but there are penalties for even minor mistakes.
In areas with variable local taxes, it may be tempting to charge the average tax rate, but doing so runs the risk of over-collecting or under-collecting, which can cause a major headache down the road.
If you over-collect sales tax, you will need to remit the overage to the state or refund it to the customer. If you under-collect, you may be personally liable for the difference.
Once you register your business, you will start receiving periodic letters and notices alerting you to changes in state and local tax rules and rates. Never skim or ignore these — it is imperative to know the exact sales tax rate where you do business.
4. Get Expert Financial Help When You Need It
In the past, employing a dedicated team to handle your business’s financials was a privilege reserved only for larger companies with room for the added overhead.
However, thanks to technological advances, outsourcing your accounting and bookkeeping to third-party firms staffed with expert CPAs and bookkeepers is easier now than ever.
As a food truck owner, you understand that wearing many hats comes with the territory. The balancing act between working, shopping, prepping, marketing, doing your taxes, and a thousand other things, is never over.
When you get to a point where you need to bring in outside help, outsourcing your accounting and finance projects might be the best stop forward.
The most effective way to knock your food truck taxes out of the park is by working with an expert team of accountants and bookkeepers, such as the finance professionals at FinancePal.
It is easy to think of accounting and bookkeeping as necessary evils to keep the IRS off your back. But a highly competent financial team can provide essential business insights, find crucial tax savings, and allow food truck operators to spend less time stressing the financials and more time serving customers. Sign up to get a custom quote today for FinancePal’s professional financial services.
More About FinancePal
If you are not familiar with FinancePal, it is is full-service accounting and bookkeeping solution serving small and medium sized businesses nationwide across various industries. FinancePal leverages best in class technology and marries it with efficient processes and trained professionals to provide our customers with an affordable highly quality monthly service. Their services include:
- Bill pay
- Sales tax filings
- Tax preparation
- Advisory service
The post 4 Top Tax Tips for Food Truck Owners appeared first on FoodTruckr | How to Start and Run a Successful Food Truck Business.
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