Running a restaurant on thin margins means every deductible dollar matters. The IRS lets you write off the cost of doing business, but only if you can show the expense was ordinary, necessary, and tied to the restaurant rather than your personal life. Restaurant owners need to know which costs are deductible, which records support those deductions, and how banking and bookkeeping can keep business spending separate.

This page is general information, not tax advice. Rules change, and how they apply to a sole proprietorship looks different from an S-corp. Confirm anything you plan to file with a CPA who works with restaurants.

What counts as a deductible restaurant business expense

A business expense must be both ordinary (common in the restaurant industry) and necessary (helpful and appropriate) to be deductible under IRS rules. A new convection oven clears that bar. A jet ski for the owner's lake house does not.

There's a second distinction that trips up new operators: the difference between an expense and a capital purchase. Under cash-basis accounting, an expense such as flour, rent, or a plumber's invoice is generally deducted in the year you pay it; accrual-basis restaurants may deduct expenses when they are incurred. A capital purchase, such as a walk-in cooler, a hood system, or a $40,000 espresso machine, generally has to be depreciated over several years unless you elect to expense it under Section 179 or bonus depreciation.

A few things are never deductible, even if you paid for them through the restaurant:

• Personal meals. Lunch you eat alone at your own restaurant is not a business meal.
• Personal vehicle use. Commuting from home to the restaurant is personal, not business.
• Owner draws and distributions. Owner draws and distributions are not deductible business expenses. In an S-corp, reasonable W-2 wages paid to a shareholder-employee may be deductible, but distributions are not.

The exact treatment of owner pay, fringe benefits, and retirement contributions depends on your entity type. Sole props, single-member LLCs, multi-member LLCs, and S-corps each follow different rules. Tax rules change; restaurant owners should confirm current-year deductions with a licensed CPA before filing.

What restaurant costs count as Cost of Goods Sold (COGS)?

For most restaurants, COGS is the single biggest deduction. It covers everything that physically goes into what you sell:

• Raw ingredients: produce, proteins, dairy, and dry goods
• Beverages: beer, wine, spirits, coffee beans, syrups, and soda
• Condiments, oils, spices, and garnish
• Takeout packaging: clamshells, cups, lids, bags, utensils, and napkins

Cost of Goods Sold deducts the inventory actually sold during the year, not everything purchased, which is why year-end inventory counts matter. If you spent up to $400,000 on food and beverage in 2025 but ended the year with $25,000 of inventory still on the shelves, your COGS is $375,000, not $400,000. That leftover $25,000 carries over as opening inventory next year.

That is why a year-end physical inventory count is needed to support the COGS deduction. Without it, your COGS number is a guess, and a guess is what triggers questions.

Spoilage and waste are deductible too, as long as you can document them. Some operators keep a daily waste log; others note it on the inventory sheet. A spreadsheet is fine. What you can't do is fold spoilage into a vague "shrinkage" number and call it good.

A practical filing habit: keep vendor invoices from Sysco, US Foods, Restaurant Depot, your produce supplier, and your local brewery organized by month. Paper folders or PDFs in dated folders both work. When your bookkeeper or CPA closes the year, those files make COGS and vendor expense review faster.

Which labor and payroll costs can restaurants deduct?

Labor is the other half of the prime-cost equation, and almost all of it is deductible.

Wages and salaries paid to W-2 employees, including line cooks, servers, dishwashers, and managers, are deductible. So are tips you pay out through payroll (tip pools and tip-outs run through your POS) and the employer portion of payroll taxes (Social Security, Medicare, FUTA, SUTA).

Benefits generally count too:

• Health insurance premiums you pay for employees
• Workers' compensation insurance
• Employer contributions to retirement plans (SIMPLE IRA, 401(k), SEP)
• Group life and disability premiums

Contract labor is deductible, including a 1099 weekend pastry cook, an outside cleaning crew, or a freelance social media manager. If you pay an eligible contractor $600 or more in a year, you may need to issue Form 1099-NEC. Confirm exceptions with your CPA or payroll provider.

Training and uniforms are deductible when they're required for the job. ServSafe certification fees, a knife skills course, branded chef coats, and aprons all qualify. Street clothes you also wear off the clock generally don't.

Staff meals are their own category. The temporary 100% deduction for business meals expired after 2022; most business meals are now 50% deductible, with specific exceptions for staff meals provided for the employer's convenience, which may still qualify for a 100% deduction in limited situations. Ask a CPA to review your staff meal policy before treating family meal or other employer-provided meals as fully deductible.

How do rent, utilities, and property costs get deducted?

If you lease your space, your monthly rent is deductible. So are the extras tucked into a commercial lease:

• Common area maintenance (CAM) charges
• Property tax pass-throughs from the landlord
• Triple-net (NNN) insurance reimbursements

If you own the building, you can't deduct rent to yourself, but you can deduct mortgage interest, property tax, and depreciation on the building.

Utilities are straightforward: electricity, natural gas, water and sewer, trash and grease trap service, internet, phone, and any music licensing (ASCAP, BMI, SESAC) all deduct in the year paid.

The line that catches operators off guard is repairs vs. improvements.

• A repair keeps the property in working order: fixing a broken oven igniter, patching a wall, re-grouting tile. Deductible now.
• An improvement adds value or extends useful life: a new HVAC system, a kitchen remodel, a new bar build-out. Capitalized and depreciated, usually over 15 or 39 years depending on the asset.

The IRS de minimis safe harbor can let businesses deduct qualifying items up to $2,500 per item or invoice if they have the right accounting policy and make the annual election. That helps when you replace a single piece of equipment, but not for a full remodel.

Business insurance premiums are deductible: general liability, liquor liability, property, business interruption, cyber, and employment practices coverage. Keep the declarations pages with your tax records.

How do restaurant owners deduct equipment, smallwares, and depreciation?

Restaurant kitchens are capital-intensive, and the tax code has two tools that let you front-load the deduction instead of spreading it over five to seven years. Section 179 and bonus depreciation let restaurants expense qualifying equipment like ovens, refrigerators, and POS hardware faster than standard depreciation.

Common depreciable assets:

• Cooking equipment: ranges, ovens, fryers, grills, salamanders, and combi ovens
• Refrigeration: walk-ins, reach-ins, prep tables, and ice machines
• POS hardware: terminals, printers, kitchen display systems, and handhelds
• Furniture: tables, chairs, booths, bar stools, and host stands
• Smallwares: knives, sauté pans, sheet trays, plates, and glassware

Section 179 lets you deduct the full cost of qualifying equipment in the year you place it in service, up to an annual cap that adjusts for inflation. Bonus depreciation applies on top of Section 179 and covers both new and used equipment, but the percentage has been phasing down each year since 2022. The exact cap and bonus percentage change annually, so confirm the current-year figures with your CPA before you plan a large purchase.

Two practical points:

1. The equipment has to be placed in service by year-end, not just ordered or paid for. A combi oven sitting in a crate in December does not count.
2. Keep the purchase invoice and serial number for every major asset. Your CPA maintains a depreciation schedule; without records, items disappear from it and you lose the deduction when you sell or replace them.

Smallwares often qualify for the de minimis safe harbor and get expensed immediately rather than depreciated. Confirm your accounting policy with your CPA so you treat them consistently.

Which technology, marketing, and delivery platform fees are deductible?

Restaurants often pay for POS, reservation, accounting, scheduling, payroll, and online ordering software, and those business subscriptions are generally deductible:

• POS software subscriptions (Toast, Square for Restaurants, Clover, TouchBistro)
• Reservation and waitlist systems (OpenTable, Resy, SevenRooms)
• Accounting software (QuickBooks, Xero) and bookkeeping services
• Scheduling and payroll (7shifts, Homebase, Gusto, ADP)
• Online ordering and loyalty platforms

On the marketing side:

• Website hosting, domain, and design
• Paid social and search ads (Meta, Google, TikTok)
• Printed menus, business cards, signage, and vehicle wraps
• Photography and food styling for marketing use
• Influencer fees and PR retainers

Delivery app commissions from platforms like DoorDash, Uber Eats, and Grubhub, plus credit card processing fees, are fully deductible business expenses. So are Stripe fees on your online ordering site and any per-transaction fees from your POS processor. Read your monthly statements carefully. The commission line and the deposit line are different, and your books should reflect gross sales with a separate expense line for fees, not net deposits.

What professional services, vehicle costs, and other write-offs can restaurants deduct?

Outside services keep the operation running and are deductible:

• Accounting and bookkeeping fees, including monthly bookkeeper retainers and year-end tax prep
• Legal fees for lease review, employment matters, and entity work
• Consulting: menu engineering, operations consultants, and HR advisors

Business vehicle expenses apply if you use a vehicle for catering, deliveries, supply runs, or off-site events. You have two methods:

1. Standard mileage rate: multiply business miles by the IRS rate. The 2024 rate was 67 cents per mile, and the rate changes annually.
2. Actual expenses: deduct the business-use percentage of gas, insurance, repairs, depreciation, and lease payments.

Your ability to switch between the standard mileage rate and actual expenses depends on how you treated the vehicle in the first year and whether you claimed depreciation. Ask your CPA before changing methods. Either way, keep a contemporaneous mileage log. A notebook in the glove box or a phone app both work.

Licenses, permits, and fees generally follow this pattern: recurring license renewals, permits, and inspection fees are deductible when paid, while initial liquor licenses or long-term rights may need to be capitalized or amortized. Confirm treatment with a CPA. Common items include:

• Business license and entity renewal
• Health department permits and inspections
• Liquor license (initial and renewal)
• Music licensing
• Sign permits

Charitable food donations have special substantiation and valuation rules. Get a written acknowledgment from the receiving organization and ask your CPA how the deduction applies to your entity type. The treatment differs between C-corps and pass-through entities, and the value you can claim depends on the inventory's basis and fair market value.

How should restaurant owners track expenses with a business checking account?

Every restaurant tax deduction rests on the same foundation: a clean paper trail that shows the expense was business, not personal. Mixing personal and business spending can weaken deductions in an audit, and a dedicated business checking account helps create clean restaurant bookkeeping records. If your produce vendor is paid from the same debit card you use to buy your kid's soccer cleats, every deduction on the return is harder to defend.

The setup that works:

1. A dedicated business checking account, where every dollar of sales lands and every business bill is paid.
2. A business debit or credit card for incidentals, with a rule that personal purchases never touch it.
3. Accounting software (QuickBooks or Xero) that pulls transactions directly from the account and lets you categorize them weekly.
4. A monthly close where books are reconciled against the account statement and any miscategorized items are fixed.

This is where Novo fits in for many restaurant operators. Novo offers business checking with $0 monthly fees and integrations with QuickBooks, Xero, Square, and Stripe, but Novo does not accept cash deposits, so cash-heavy restaurants need a separate cash deposit plan. Online ordering revenue from Square or Stripe lands in your Novo account, and transactions sync to QuickBooks or Xero via Novo's integrations.

The honest tradeoff: Novo does not accept cash deposits. If you're a counter-service spot doing 40% of sales in cash, you'll need a workaround, typically a secondary account at a local bank or credit union where you make cash deposits before you ACH the balance to Novo for everyday operations. For restaurants where most revenue arrives by card, online ordering, or delivery platforms, Novo may fit day-to-day operations, but any cash sales still need a deposit workaround.

One Novo feature worth setting up: Reserves. You can create named Novo Reserves for categories such as quarterly taxes, sales tax, payroll, and equipment funds. Setting aside tax money as revenue comes in can make quarterly estimates and year-end payments easier to manage.

What records should restaurant owners keep for tax deductions?

The IRS generally has three years to audit a return, six years if there's a substantial understatement, and unlimited time for fraud. A safe rule: keep records for at least three years, and seven for anything tied to depreciation or property.

What to keep:

• Vendor invoices and receipts (paper or digital scans both qualify)
• Payroll reports and quarterly tax filings (941, state UI)
• Account statements for business checking and credit cards
• Mileage logs for business vehicle use
• Year-end inventory counts
• Asset purchase invoices with serial numbers
• 1099s issued to contractors and received from third-party platforms

The mistakes that come up over and over:

• Mixing personal and business cards. Even one personal Amazon order on the business card creates a problem to explain.
• Skipping year-end inventory counts, which makes COGS a fiction.
• Miscategorizing capital purchases as expenses. For example, a $12,000 walk-in deducted as "supplies" is the kind of item that can get pulled in an audit.
• Forgetting tip income reconciliation. Reported tips should match what the POS recorded and what flowed through payroll.
• Closing the books in April instead of monthly. Reconcile monthly. By the time tax season hits, you should be reviewing, not reconstructing.

When a deduction has real dollars attached, ask a CPA who works with restaurants. The fee for an hour of advice is itself deductible, and it's cheaper than a missed deduction or a disallowed one.

Frequently asked questions

Are staff meals 100% deductible? Staff meals may be deductible, but the percentage depends on the facts and current Section 274 rules. Most business meals are 50% deductible, and restaurant owners should confirm any 100% treatment with a CPA.

Can I deduct my own meal at the restaurant? No. Your personal meals are not a business expense, even if you eat what your kitchen prepares.

Are DoorDash and Uber Eats commissions deductible? Yes. Third-party delivery commissions are ordinary and necessary business expenses and fully deductible.

Do I depreciate smallwares? Many smallwares qualify for the de minimis safe harbor and can be expensed immediately. Larger equipment is depreciated, often accelerated under Section 179 or bonus depreciation.

What should restaurant owners look for in a business checking account? Look for $0 monthly fees, accounting integrations (QuickBooks, Xero), POS and processor integrations (Square, Stripe, Toast), and a way to set aside tax money. If you handle a lot of cash, confirm the provider accepts cash deposits or plan a secondary account for cash.