As every food truck owner knows, the rules and regulations can vary dramatically from state to state, city to city, and even neighborhood to neighboorhood. However, each and every trailer, kiosk and food truck is required to pay taxes. The type and amount you’ll end up handing over to Uncle Sam depends on several factors, including your location, the profit margin, and the type of business entity your truck falls under. For example, if you operate as a sole proprietorship, you can expect to fill out a 1040 form each year, but if you operate your truck with a friend and define it as a partnership, your taxes become more complicated. Regardless of the type of business entity you claim, the amount you end up paying will largely depend on how effectively you can make the most of the tax deductions available to you. Make sure to deduct these 5 expenses, and you’ll save some serious money this April!
1 | Depreciating Your Large Equipment Purchases
To start any food truck, you’ll have to purchase some large equipment that can cost in the thousands of dollars. In addition to up-to-code refrigeration systems, owners must also consider grills, ranges, ovens, generators and other large pieces of equipment. While it is possible to claim large, one-time tax deductions on these items, experts recommend slowly depreciating these expensive pieces of equipment over a few years to make the most of the tax benefits. As a good rule of thumb, if a piece of equipment costs more than $500, depreciate it over time instead of all at once.
2 | Traveling Between Locations
Although many food truck operators stay within one local area, some businesses travel far and wide, attending festivals and competitions throughout the country. Hundreds of these events take place across the United States, and attending them can drum up some of your biggest business and even get you on the list as one of the best food trucks in America. Of course, traveling across state lines means paying for lodging and your own meal expenses – not to mention gas. If you keep records of these expenses, including receipts and the dates you depart and return, you can deduct them on your taxes each year. Don’t forget to track the locations and names of the events, as well as what you hope you achieve from the event. Trade shows and conferences fall under these deductions as well.
Remember that the expenses you incur go beyond the cost of the festival itself. Make sure to keep receipts and factor each of these items into the overall cost of the event:
- Event Costs (entrance fees, extra licenses, etc.)
- Extra Staff
3 | Using Your Truck
Operating a food truck obviously incurs vehicle-related expenses. You have two options for claiming these tax deductions. You can either deduct tax-related expenses related to the actual food truck or you can deduct the standard mileage rate. If you choose to deduct vehicle-related expenses, keep track of maintenance payments like tire and oil changes, the cost of fuel, and tolls and parking expenses. Should you choose to deduct mileage, you receive a specified amount per mile (in 2017, it was 53.5 cents per mile). You’ll need to track your own mileage to ensure accuracy. Some owners choose to track both throughout the year and then claim whichever one gives the biggest tax deduction, which is an excellent idea if you’re looking for the most savings. There are plenty of apps on the market that can help you track your mileage throughout the year.
4 | Business Insurance
As the owner of a food truck, you are required to purchase several types of business insurance to protect yourself, your business and other people. These are the four most common types of insurance:
- Commercial Vehicle Insurance – This required policy covers any damage or liability if you are in a traffic accident while driving your truck.
- General Liability – This coverage is required in most states to obtain the necessary licenses to operate your truck. It covers any property damage or injury caused by your business (like food poisoning, for example).
- Property Insurance – Another recommended policy, property insurance protects your truck and its equipment if it’s in an accident or if you are the victim of theft.
- Workers’ Compensation – This insurance is typically required if you employ anybody and covers your employees if they are injured on the job. This policy often covers medical bills and lost wages and sometimes includes any legal fees.
Luckily, you may be able to claim your business insurance premiums as a tax deduction each April. However, only certain types of insurance fall under this deduction, so if you are unsure, it is important to talk to a CPA or another tax professional. He or she will help you determine which ones are deductible so that you don’t make a mistake on your tax forms.
Get the Food Truck Policy for as little as $21/Month. Protect your business in as little as 3 minutes:
5 | Operational Costs
Food trucks have a variety of constant expenses, the most obvious being the cost of the actual food you’re serving. A second common expense is rent at a community kitchen. These day-to-day items may not seem like big ticket tax deductions, but they can really add up over time. Keep track of receipts for each of these items, and you may be surprised how much you’ll be able to deduct by the end of the year.
- Food, beverages and condiments
- Cooking equipment
- Paper plates, napkins, utensils, etc.
- Community kitchen rent (or whatever facility you’re using)
- Staff salaries and benefits
- Continued education (i.e. cooking classes or safety trainings for you or your staff)
Bonus Tip: Establish a Formal Business Entity
Most people who open a food truck do so as a sole proprietorship to start. However, those who operate their trucks as self-employed often pay much higher taxes than those who incorporate their businesses. Additionally, someone operating as a sole proprietorship has fewer legal protections. For example, if you operate a sole proprietorship and somebody decides to sue your food truck business, your personal assets could be considered during the court case (as opposed to only your business assets).
Incorporating your company as an S-corporation, C-corporation or LLC provides extra protection in legal cases and can cut your taxes by as much as 50 percent. In addition to paying fewer income taxes, incorporating your business can make you eligible for other deductions and allows you to perform professional tasks such as opening a business bank account or line of credit.
Protecting Your Business
Remember, no matter how much you save on your taxes, you could lose it all in seconds the moment a child trips over your generator chord, or a customer has an allergic reaction. Spending about $21 on business insurance can save you from thousands in legal fees (not to mention PR nightmares) down the road – and like we mentioned, you’ll be able to deduct the expense in April! Get a quote in as little as 5 minutes, or reach out to our team of advisors to help build the perfect policy for your business.