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3 Ways restaurants can accidentally commit tax evasion

On Behalf of | Sep 29, 2022 | Tax Evasion

 

Tax evasion, whether intentional or unintentional, is a serious crime that can have major financial consequences for the offender as well as their business. While most restaurant owners that commit tax evasion do so unintentionally, these potential crimes still come with very stiff penalties and fines. The risks and consequences of committing tax evasion should be taken seriously by all restaurant owners.

Expense deductions

One common way that restaurant owners may unintentionally commit tax evasion is through incorrectly deducting expenses. This often innocent but costly mistake can happen when a deducted expense is not related to their business, even if the owner mistakenly believed that it qualified. While an accountant or tax preparer might be responsible for reporting this expense on tax filings, the restaurant owner is ultimately responsible and will be expected to pay the tax due.

Overstating expenses or underreporting income

Another overlooked form of tax evasion committed by many small business owners, including restaurant owners, is overstating expenses or underreporting income. If a restaurant owner buys raw materials from vendors at wholesale prices lower than their retail value and later sells them to customers at retail prices without reporting this as taxable income, they are both overstating their expenses and underreporting income.

Accepting fraudulent payments

Most people think of stolen credit cards, bad checks, or sometimes counterfeit money when they think of fraudulent payments; however, government assistance can also be used fraudulently. In some states, restaurants can accept payment in the form of food stamps to purchase hot meals. These food stamps are known as SNAP or Supplemental Nutrition Assistance Program. 

Not every state can accept SNAP benefits for ready-to-eat meals, but any store can accept these benefits if they sell certain types of foods such as bagels, loaves of bread, or even a jar of signature pasta sauce or pizza dough. Any restaurant that sells staple foods, such as dairy products, bread, or cereal, is eligible, but they are also responsible for reporting these sales and paying the required taxes. 

If a restaurant owner knowingly lets customers use SNAP benefits for unapproved items, this can lead to fines and other penalties imposed by the state, county, or federal agency. If an employee accepts SNAP benefits on ineligible items, either intentionally or because they mistakenly thought an item was a staple food, this employee may also be liable for tax evasion by the employer. Additionally, if a restaurant overcharges on a customer’s order with food stamps, they are committing theft in addition to tax evasion. 

 

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