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On Premise Advice: These are Taxing Times

By April 1, 2018Rhode Island, Top News

Len Panaggio, Beverage Consultant

By Len Panaggio

In April, there is a lot going on: Easter, Patriots Day in Massachusetts, which benefits us in Rhode Island, school vacation, and at last, longer days. Among all those good things there is April 15, the day of reckoning, both for owners and employees.

I assume all of you hire accountants and although there aren’t many changes we can use for tax year 2017, there are many that you should be aware of for 2018. The economy is growing, consumer optimism is high, and restaurant and other hospitality stocks are doing well. Our industry is poised to be the beneficiary of the good times heading our way.

After consulting with your accountant, take advantage of what the tax law is doing for all of us. Certainly, dropping corporate taxes and the pass-through numbers that many of us are in allows us to reinvest in our businesses.

Assess your equipment and facility needs, not just at the bar, but your entire property, and create a smart strategy to invest in yourself. Is your 20-year-old beer cooler costing you more in repairs than it would cost to replace it? What condition are your walk-ins in? Is your bar itself falling apart after years of use? Does it need an overhaul? Does it have coat hooks under the top and outlets or USB ports so guests can charge their phones themselves rather than asking your bar staff to do it for them? Is it time to put an espresso machine at the bar? This addition will most certainly help your bartender out while increasing service and sales.

The government also cut the federal excise tax for two years, which is a $4.2-billion windfall for beer, wine and spirit producers. My question is: will we, as end users, see any of that savings? Stay tuned! My point is, I think that the government is asking you to spend as it will help the economy even further. So take this opportunity to upgrade not just your bar, but your entire facility, and position your property for a brighter future.

Just as you are paying your taxes, so are your bartenders and servers. However, because their tips are added into their checks for taxing purposes, they receive zero paychecks and at the end of the year, they have incurred a shortfall and must now come up with, in many instances, several thousand dollars to settle with both the state and federal government. Encourage your employees, or if you are an employee yourself — your colleagues — to avoid the annual nightmare of owing thousands of dollars to state and federal taxing agencies by making payments on tips throughout the year. Education can alleviate a lot of nightmares at tax time and learning how to plan ahead is critical.

One way to eliminate this issue is to buy in to the seemingly growing trend to hold on to charge tips and put them into employees’ paychecks. This also is good for the house as the need to have a large amount of cash on hand is all but eliminated. If you make this change, prepare for an outcry from employees, as the time-honored tradition of going home with all of their money every day will be altered. But like anything else, they will adjust eventually, and when they file their taxes the following year, they may even get a refund.

I encourage all of you to think about these changes while keeping an eye on our legislature, as this is the time when they will get creative and find more ways of inflicting financial harm on all of us. Change is good, being vigilant is wise!

Len Panaggio’s career in food and wine spans more than three decades as an owner and as a beverage director at some of the top restaurants in Rhode Island. Currently a hospitality consultant, Len is a graduate of the University of Rhode Island and has attended the Culinary Institute of America Master Sommelier program and the Sterling School of Service and Hospitality.

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