Did you know that a brand and business are not the same thing? The names could match, but they’re not the same thing.

Did you know that a product and a brand are not the same thing? Again, the names could match, but they’re not the same thing. Are you confused? Don’t worry. You’re not alone.

The terms brand, product and business are often used interchangeably when they’re referred to by name, but from a legal point of view, they’re very different things. You need to understand those differences or your business, brand, and products could be in jeopardy in the future.

Let’s take a closer look.

WHAT IS A BUSINESS NAME? Your business name (also referred to as your trade name) is the name that you register with your state to operate. You use it on your bank account, your tax forms, and other legal documents. For example, Nike, Inc. is the business name of the Nike company.

WHAT IS A BRAND NAME?  A brand name is the name that you use to identify the family of products or services that you offer or a single line of products or services that you offer. For example, Nike is the brand name used on most products manufactured by Nike, Inc. In this example, the business name and brand name are the same. However, a business name and brand name don’t have to be the same. Many companies have many brands. For example, Apple is a company with many brands such as iPad, iPhone, iPod, and Mac.

WHAT IS A PRODUCT NAME?  A product name could be as generic as “car” but with so many products and services on the market, businesses create more unique product names to differentiate their products from competitors’ products. In this case, a product name identifies a specific product or service and becomes a brand name when the company starts using it. For example, the Toyota company operates using Toyota as its company name, and its products are cars. To differentiate its cars from the competition, the company brands them with the Toyota brand name (in addition to its Lexus and Scion brand families), and within the Toyota brand family, there are sub-brands like Corolla, Camry, and Sienna. But that’s not all. Within those sub-brands, there are specific product models like the Toyota Sienna CE, the Toyota Sienna LE, and so on. A company’s brand architecture can get as deep as a well-researched family tree!

WHAT DOES THIS ALL MEAN? Bottom-line, your business name, brand name, and product or service name could all match, but they don’t have to. They’re different things and whether or not they match, they all need to be properly cleared for use and protected or you could find yourself in expensive trouble in the future.

Here’s what you need to do:

1. BUSINESS NAME You need to clear your business name at the state level to start operating, and you need to determine if you’ll be using your business name as a brand name, too. If so, make sure you follow the steps in #2 below.

2. BRAND NAME You need to do a comprehensive trademark search to ensure your brand name is clear for you to use and then apply for a trademark registration for that name so you can protect it and grow your brand in the future.

3. PRODUCT NAME Once you start using a product name in the marketplace, it becomes a brand name and should be cleared and protected as a valuable company asset. You should conduct a trademark search to ensure the name is clear for you to use. Once the name is cleared, you should apply for a trademark registration for that name so you can protect it and grow it as a brand in the future. Never underestimate the power of a brand! Your brand names have value, so make sure you protect them!

September 22, 2019 By Kelley Keller

ABOUT K E L L E Y K E L L ER

Kelley Keller, Esq. is an intellectual property (IP) attorney, speaker, and educator with two decades of experience in the IP field. She works with individuals and businesses in a wide variety of industries helping them transform their ideas, knowledge, and innovation into valuable business assets that drive profits. Kelley offers education to established businesses, startups, entrepreneurs, corporate executives, nonprofits, government agencies, legal professionals, and students about starting and growing a business as well as about IP, social media law, and the importance of protecting valuable brand assets and creative work.

Sometimes people feel that they are controlled by external circumstances.  But the fact is that your life is largely determined by your own personal choices and decisions in every area.  You are where you are and what you are because of yourself.  You have gotten yourself to where you are as the result of the choices and decisions that you have made in the past.  If you want to be somewhere else in the future, it is up to you to make new and better choices and decisions in the present.

Action–Defined

One of the most important discoveries in 20th century thought has been the central role of the actions that you take.  An action is defined as something with a consequence.  Using this definition, even an inaction can be considered to be an action, because inaction, or a failure to act on your part, has a consequence that can dramatically impact your life.

For example, a person who fails to finish school, or fails to read regularly, or to listen to audio tapes and take additional training, is committing to what you might call an “inaction.”  But because it has devastating consequences on the future for that person, it can be considered an action as well.

The most important actions that you take in determining the quality of your life revolve around the virtues and values that you decide to embrace and live by.  They are as important to your life as breathing in and breathing out.  The fact is that everything that you do is largely determined by what you feel to be good and right and true about life and people-your values!

When you are living consistent with your values, you feel good about yourself.  When you are living inconsistent with your values, you feel badly about yourself.

Be Happy and Feel Good

Aristotle, perhaps the greatest of all the philosophers, broke new ground in thinking when he determined that all of human action is aimed at achieving the happiness of the individual.  He said that we are all the same in this one respect.  We all seek happiness, however we define it.  Everything you do is merely a step in the direction of achieving the ultimate happiness you seek. Aristotle did not stop there.  He went on to point out that only the good can be happy, and only the virtuous can be good.  Therefore, all happiness is determined by the ability of the individual to establish and live by values and virtues that are life enhancing.

From the earliest days of civilization, the purpose of an education was to instill values into the character of the young.  For the first 200 years of American historical development, it was understood that the purpose of the schools was to teach values and the purpose of the home was to teach religion.  Young people were instructed by reading the stories, poems and plays of men and women in previous time periods who most demonstrated and illustrated the values by which that person should live if a person wanted to have a happy life.

Aristotle went on to point out that, if you have been brought up without clear values, you can develop values by deciding upon the kind of person you want to be and then by acting as if you had the values that that person would have.

Sculpt Your Life and Your Future

The wonderful thing about being a human being is that you are free to shape and sculpt your own character.  You can make new choices and decisions at any time of life, especially with regard to your values, and begin acting as if you had those values already.

Perhaps the measure essence of happiness is your ability to achieve the three common goals of self-respect, self-esteem and personal pride that everyone wants.  It is only when you have these three in sufficient quantities that you feel really good about yourself.

By Brian Tracy

In most restaurants there’s no one person that impacts your day-in, day-out profitability and success like the one who manages your kitchen.

Here are 10 traits that we’ve noticed consistently in kitchen managers of highly successful independent restaurants.

How Does YOUR   kitchen manager measure up?

The best KMs can be found in the kitchen, not the office

They keep the recipe binders up-to-date, in good condition and easy to get to.

They make using the recipe cards mandatory. They don’t trust anyone’s memory.

They plan for “teaching moments” every day.

They conduct food demonstrations in shift meetings.

They perform detailed line checks before every shift.

They develop key people at the window and expo stations.

They constantly encourage communication and organization.

They are dedicated to achieving your ticket time goals.

They manage the “flow” and don’t get tied to one task.

As the owner of an incorporated business, you’re probably aware that there’s a tax advantage to taking money out of the corporation as compensation (salary and bonus) rather than as dividends. The reason is simple: A corporation can deduct the compensation that it pays, but it can’t deduct dividend payments. Thus, if funds are withdrawn as dividends, they’re taxed twice—once to the corporation and once to the recipient. Money paid out as compensation is taxed only once—to the employee who receives it.

However, there’s a limit on how much money you can take out of the corporation in this way. The law says that compensation can be deducted only to a reasonable extent. Any unreasonable portion is nondeductible and, if paid to a shareholder, may be taxed as if it were a dividend. As a practical matter, the IRS rarely raises the issue of unreasonable compensation unless the payments are made to someone “related” to the corporation, such as a shareholder or a member of a shareholder’s family.

How much compensation is considered “reasonable”? There’s no simple formula. The IRS tries to determine the amount that similar restaurants would pay for comparable services under like circumstances. Factors may include the employee’s duties; the amount of time required to perform those duties; the employee’s abilities and accomplishments; the complexities of the business; the gross and net income of the business; the employee’s compensation history; and the corporation’s salary policy for all of its employees.

There are a number of concrete steps you can take to make it more likely that the compensation you earn will be considered “reasonable” and, therefore, deductible by your corporation. For example, you can:

•  Use the minutes of the corporation’s board of directors to contemporaneously document the reasons for the amount of compensation paid. For example, if compensation is being increased in the current year to make up for earlier years in which it was too low, be sure that the minutes reflect this change and the reason for it.

•  Avoid paying compensation in direct proportion to the stock owned by the corporation’s shareholders. This looks too much like a disguised dividend and will probably be treated as such by IRS.

•  Keep compensation in line with what similar restaurants are paying their waitstaff and managers. Hold on to any supporting evidence that you may acquire in case the IRS questions you about it later.

•  If the business is profitable, be sure to pay at least some dividends. This avoids creating the impression that the corporation is trying to pay out all of its profits as   compensation.

Finally, be aware that Form 1120S, Line 7, reports compensation to officers received from your restaurant operations. The IRS scrutinizes all tax returns that have a zero amount on this line, and we are told that these returns are frequently selected for inspection. This may lead to an eventual audit, so make sure that you have paid yourself a reasonable compensation if you are the shareholder of your entity.

In the case of an audit of one of my firm’s clients in California, covering the tax years 2010 to 2012, the following documents had to be submitted: •  Sales and use tax returns, including related worksheets •  General ledger and related journals supporting tax 
return calculations •  Sales invoices and cash register tapes (if applicable) •  Purchase invoices (paid bills) for consumable supplies and fixed assets (i.e., furniture, fixtures and equipment) •  Documentation supporting claimed exempt sales (i.e., resale certificates and freight bills) •  Federal income tax returns, including depreciation schedules •  Property tax statements •  Sales invoices for fixed assets sold during the audit period

For our first meeting with the auditor, we organized everything on a CD and even prepared a Net Sales Calculation. We provided an Excel worksheet with documentation that concurred with the POS system’s record of net sales as well as the quarterly financial records, the quarterly sales tax filings and each year’s federal income tax returns. Our proactive and transparent approach boosted our credibility with the auditor.

We also provided a sample daily sales report from the POS system and accounting records that offered a road map of the sales calculation flow from daily sales to quarterly sales tax filings. By illustrating our method of following state procedures, we had to spend less time educating the agent and defending our filings.

This proactive approach should be part of your monthly, quarterly and annual accounting procedures so you’ll be prepared for an audit. Don’t wait to see if your accountant has assembled documents in a way that would defend a sales-and-use tax audit. While you are completing year-end tax returns, simply ask the question, “Are we ready for an audit?”

QUESTION:

Are gross receipts from some restaurant supplies purchased for resale exempt from state sales tax?

ANSWER:

As a general rule, some items are exempt, and others are not. Here in Arkansas, exempt items include paper, plastic and Styrofoam cups used for dispensing beverages as well as paper and plastic lids; paper and plastic bowls, paper boats, boxes and containers used for dispensing food items; and the wrappers for these bowls, boats, boxes and containers.

Nonexempt items include paper plates; paper and plastic straws and stirrers; plastic tableware and utensils; paper napkins; paper sacks; and premoistened towelettes.

However, restaurants that use paper plates or other containers may purchase the plates or containers exempt as a sale for resale. In other words, if your supplier charges sales tax on these items, you can obtain a valid resale certificate in your state and provide it to your supplier; this will ensure that you don’t have to pay sales tax once when buying these items and again when you charge the customer and collect the tax. Regardless, state tax laws vary, so you must consult with an accountant in your state to get all the facts.

As the owner of an incorporated business, you’re probably aware that there’s a tax advantage to taking money out of the corporation as compensation (salary and bonus) rather than as dividends. The reason is simple: A corporation can deduct the compensation that it pays, but it can’t deduct dividend payments. Thus, if funds are withdrawn as dividends, they’re taxed twice—once to the corporation and once to the recipient. Money paid out as compensation is taxed only once—to the employee who receives it.
However, there’s a limit on how much money you can take out of the corporation in this way. The law says that compensation can be deducted only to a reasonable extent. Any unreasonable portion is nondeductible and, if paid to a shareholder, may be taxed as if it were a dividend. As a practical matter, the IRS rarely raises the issue of unreasonable compensation unless the payments are made to someone “related” to the corporation, such as a shareholder or a member of a shareholder’s family.
How much compensation is considered “reasonable”? There’s no simple formula. The IRS tries to determine the amount that similar restaurants would pay for comparable services under like circumstances. Factors may include the employee’s duties; the amount of time required to perform those duties; the employee’s abilities and accomplishments; the complexities of the business; the gross and net income of the business; the employee’s compensation history; and the corporation’s salary policy for all of its employees.
There are a number of concrete steps you can take to make it more likely that the compensation you earn will be considered “reasonable” and, therefore, deductible by your corporation. For example, you can:
• Use the minutes of the corporation’s board of directors to contemporaneously document the reasons for the amount of compensation paid. For example, if compensation is being increased in the current year to make up for earlier years in which it was too low, be sure that the minutes reflect this change and the reason for it.
• Avoid paying compensation in direct proportion to the stock owned by the corporation’s shareholders. This looks too much like a disguised dividend and will probably be treated as such by IRS.
• Keep compensation in line with what similar restaurants are paying their waitstaff and managers. Hold on to any supporting evidence that you may acquire in case the IRS questions you about it later.
• If the business is profitable, be sure to pay at least some dividends. This avoids creating the impression that the corporation is trying to pay out all of its profits as compensation.
Finally, be aware that Form 1120S, Line 7, reports compensation to officers received from your restaurant operations. The IRS scrutinizes all tax returns that have a zero amount on this line, and we are told that these returns are frequently selected for inspection. This may lead to an eventual audit, so make sure that you have paid yourself a reasonable compensation if you are the shareholder of your entity.

Yes, and this will be very important to restaurant operators. In legalese, a payment settlement entity (PSE) must file Form 1099-K for payments made in settlement of reportable payment transactions for each calendar year. A reportable payment transaction is any payment-card or third-party-network transaction in which the PSE submits the instruction to transfer funds to the account of the participating payee.

Form 1099-K identifies the gross amount of the total reportable payment transactions for each participating restaurant with a unique merchant account number, without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.

Why should you be concerned about this? Beginning in 2012, the payments an S corporation receives through merchant cards (for example, VISA and MasterCard) or third-party networks (Paypal and Google Checkout) must be reported separately from other receipts. These receipts are reported on line 1a, “Merchant card and third-party payments.” The S corporation should receive a Form 1099-K showing the amount of such payments. However, a Form 1099-K may not be received for all such payments; the payer must file a Form 1099-K only when payments exceed $20,000 and the total number of transactions exceeds 200. Regardless of whether a Form 1099-K is received, all such receipts should be reported on line 1a.

What’s really important to keep in mind is that, as of tax year 2012, a restaurant owner is now required to separate sales between cash and credit card payments when reporting net sales to the IRS. Several matching issues arise during the accumulation of data for this process.

What’s really important to keep in mind is that, as of tax year 2012, a restaurant owner is now required to separate sales between cash and credit card payments when reporting net sales to the IRS. Several matching issues arise during the accumulation of data for this process.
For starters, if the credit card sales reported for a restaurant’s gross income on the tax return differs from the total of all Form 1099-Ks received from these PSEs, the IRS will generate an automated notice asking for an explanation.

Restaurant operators will need to take steps to comply with the new rules. By using a point-of-sale system that captures daily credit card sales accurately, the matching process can be handled with comparative ease. You must make sure that your tax files match the amounts being reported on Form 1099-K. In addition, make sure that the PSE that handles your credit card processing has your operation’s correct address so you’ll always receive the data that the PSE reports to the government.

Additionally, for cash-based businesses, many restaurants report only credit card transactions as reportable gross income on their tax returns. But, by separating out the credit card receipts from cash receipts, the IRS is now creating data by SIC code (that is, industry classification, such as 722110 for limited-service restaurants) from all Form 1099-Ks issued and the associated tax returns received. We have been told that inquiry notices will be sent to taxpayers who deviate from an acceptable range of a percentage of credit card sales to total receipts. So, when a restaurant reports 100% of credit card sales and no cash sales, they might receive a notice from the IRS asking for an explanation!

We recommend preparing a daily reporting system that clearly identifies cash and credit card receipts so that, in the case of an audit or inquiry, these reconciliation sheets and work papers can be submitted for proof to the IRS, creating a road map on reportable gross receipts for your restaurant.

You can start by shopping around. If it has been six months or more since you last received a quote from your current merchant service provider, you should take a little time to reach out and contact other providers. As most of you have experienced, it won’t take long before some aggressive salesperson will turn up and promise you the moon.

To get started, compare your rates and fees on a transaction category basis. For example, card-present transactions incur a lower fee than corporate cards. To ensure accuracy, the provider will need copies of your merchant’s statements from the past three months for the purpose of comparison; ask specifically for an annual savings calculation. Additionally, you’ll want to make sure that you familiarize yourself with your current provider’s termination fees in case you decide to make a switch, and make sure you fully understand the new provider’s termination fees before making your final decision.

Of course, you’ll also want to make sure that your equipment is compatible with the new provider’s requirements. Finally, ask the new provider if you will have the ability to view your daily transactions online, batch by batch; using this approach, you will be able to monitor your merchant fees as you go along rather than having to wait until the end of each month. In this era of “big data,” you have every right to receive your data from the provider in a timely manner that allows you to keep a close watch on it.

Does this conversation sound familiar?
“ Hey, don’t put that container in the microwave. It’s plastic. It could leach chemicals into the food.”
“ But its labeled microwave safe ­ it must be ok.”

What does microwave safe really mean? Does it mean safe for people, or safe for containers?

It means if you put a “microwave safe” plastic container into the microwave, it is not going to bubble and melt. It means no one handling the container will suffer a burn from melting plastic.

But after that, the debate starts.

Frederic vom Sall is a world expert on Bisphenol A (BPA). He has been studying the chemical for over a decade. “There is no such thing as safe microwaveable plastic,” vom Saal says. “As you heat it, you degrade the chemical bond. You can’t see this happening. You can’t taste it, you can’t smell it, but you are getting dosed at a higher and higher amount.”

Studies exposing plastic to heat in a microwave caused higher levels of Bisphenol A to be released into food. The studies also found BPA was released when plastic containing BPA was exposed to heat from dishwashers and hot food. Some studies detected leaching even at room temperature. Heavily scratched or worn plastic releases even higher levels of chemicals.

BPA is classified as “inherently toxic” in Canada’s chemical management program. It is one of the first 200 chemicals up for review. Many scientists and environmentalists consider BPA one of the major chemical time bombs of our era, comparable to now banned chemicals such as DDT and PCBs.

“This chemical acts like the estrogen in birth control pills,” says vom Saal. “As an adult man or woman, you are putting a sex hormone into your body that’s going to alter your reproductive system. You decrease fertility. You cause sperm abnormalities.” Evidence is showing that, unlike most chemicals, small exposures of BPA may be more harmful than larger ones. Because the effects of BPA are long-term and may not show up for years, it is a very difficult chemical to study. Dr. Helen Binns, a Chicago pediatrician and member of the American Academy of Pediatrics environmental health committee believes in precaution. She notes that while new products may make life easier, “We always need to approach their use with caution. Where clear, better alternatives exist, we need to choose the alternatives.”

“We need more data,” Binns says. “The hard thing is, sometimes the data come too late. “The PCBs are out there. The DDT is out there.”

The watchdog organization, Environmental Defense Canada thinks that BPA is so dangerous that it has urged the federal government to ban BPA immediately rather than waiting for completion of the assessment. It’s a logical step, says Rick Smith of Environmental Defense, considering there are alternatives to the chemical.

Health Canada’s website doesn’t reflect the conflicting evidence about the safety of microwaving plastic. Health Canada says only that “microwave safe” plastic is indeed safe. Although officially, government policy is to follow a precautionary approach, information from Health Canada does not reflect the state of the science.

Other types of plastic, such as plastic bags, yogourt or margarine containers, foam trays and plastic wraps are a definite no for microwave use. There is widespread agreement, from Health Canada, the US Environmental Protection Agency and other experts, that plastics which are not approved for microwave use may leach hazardous chemicals into foods.

BPA is a major ingredient in polycarbonate plastics, normally labeled with recycling number 7. While polypropylene and polyethylene plastics, marked with product codes 1, 2 and 5, appear safer, vom Saal says they may still contain BPA, because polycarbonate is often combined with other plastics, although it may not be listed on the label.

If you are going to microwave, it’s easy to find alternatives to plastic. Glass jars or covered dishes are excellent for food storage and can be used to reheat food in the microwave. Ordinary dishes can be used safely in the microwave too, as long as they are not plastic. As for cooking a chicken or roast, nothing tastes as good as oven roasting.

Sometimes people feel that they are controlled by external circumstances. But the fact is that your life is largely determined by your own personal choices and decisions in every area. You are where you are and what you are because of yourself. You have gotten yourself to where you are as the result of the choices and decisions that you have made in the past. If you want to be somewhere else in the future, it is up to you to make new and better choices and decisions in the present.

Action–Defined

One of the most important discoveries in 20th century thought has been the central role of the actions that you take. An action is defined as something with a consequence. Using this definition, even an inaction can be considered to be an action, because inaction, or a failure to act on your part, has a consequence that can dramatically impact your life.

For example, a person who fails to finish school, or fails to read regularly, or to listen to audio tapes and take additional training, is committing to what you might call an “inaction.” But because it has devastating consequences on the future for that person, it can be considered an action as well.

The most important actions that you take in determining the quality of your life revolve around the virtues and values that you decide to embrace and live by. They are as important to your life as breathing in and breathing out. The fact is that everything that you do is largely determined by what you feel to be good and right and true about life and people-your values!

When you are living consistent with your values, you feel good about yourself. When you are living inconsistent with your values, you feel badly about yourself.

Be Happy and Feel Good

Aristotle, perhaps the greatest of all the philosophers, broke new ground in thinking when he determined that all of human action is aimed at achieving the happiness of the individual. He said that we are all the same in this one respect. We all seek happiness, however we define it. Everything you do is merely a step in the direction of achieving the ultimate happiness you seek. Aristotle did not stop there. He went on to point out that only the good can be happy, and only the virtuous can be good. Therefore, all happiness is determined by the ability of the individual to establish and live by values and virtues that are life enhancing.

From the earliest days of civilization, the purpose of an education was to instill values into the character of the young. For the first 200 years of American historical development, it was understood that the purpose of the schools was to teach values and the purpose of the home was to teach religion. Young people were instructed by reading the stories, poems and plays of men and women in previous time periods who most demonstrated and illustrated the values by which that person should live if a person wanted to have a happy life.

Aristotle went on to point out that, if you have been brought up without clear values, you can develop values by deciding upon the kind of person you want to be and then by acting as if you had the values that that person would have.

Sculpt Your Life and Your Future

The wonderful thing about being a human being is that you are free to shape and sculpt your own character. You can make new choices and decisions at any time of life, especially with regard to your values, and begin acting as if you had those values already.

Perhaps the measure essence of happiness is your ability to achieve the three common goals of self-respect, self-esteem and personal pride that everyone wants. It is only when you have these three in sufficient quantities that you feel really good about yourself.

By Brian Tracy

In most restaurants there’s no one person that impacts your day-in, day-out profitability and success like the one who manages your kitchen.

Here are 10 traits that we’ve noticed consistently in kitchen managers of highly successful independent restaurants.

How Does YOUR   kitchen manager measure up?

The best KMs can be found in the kitchen, not the office

They keep the recipe binders up-to-date, in good condition and easy to get to.

They make using the recipe cards mandatory. They don’t trust anyone’s memory.

They plan for “teaching moments” every day.

They conduct food demonstrations in shift meetings.

They perform detailed line checks before every shift.

They develop key people at the window and expo stations.

They constantly encourage communication and organization.

They are dedicated to achieving your ticket time goals.

They manage the “flow” and don’t get tied to one task.

Vanilla lovers are impulsive.

Vanilla is one of the simplest of ice cream flavors, but its fans are actually likely to be colorful, impulsive, idealistic risk-takers who “rely more on intuition than logic,” according to studies conducted by neurologist Dr. Alan Hirsch, founder of the Smell and Taste Treatment and Research Foundation. Vanilla lovers were also emotionally expressive and successful in close relationships. As for the research: Hirsch uses various standardized psychiatric test results to make statistical correlations, explaining that the same part of the brain (the limbic lobe) is responsible for both personality traits and food preference. Interestingly, Hirsch says the taste for your favorite ice cream is set during childhood and tends to remain consistent throughout your life.

Strawberry lovers are introverts.

In a study by Hirsch for Baskin Robbins, strawberry lovers were often tolerant, devoted, and introverted; in research conducted for Dreyer’s/Edy’s, he found fans of the berry flavor were also logical and thoughtful.

Chocolate lovers are flirtatious.

If you prefer a chocolate scoop, Hirsch determined you are likely to be flirtatious and seductive, and also lively, charming, dramatic, and gullible.

Mint chocolate chip lovers are argumentative.

Always mixing it up? There’s a good chance mint chocolate chip is your favorite flavor, according to Hirsch’s study for Dreyer’s/Edy’s, which found this ice cream signified ambition, confidence, frugalness, and argumentativeness. “[They] aren’t fully satisfied until they find the tarnish on the silver lining,” said Hirsch about its fans. However, Hirsch predicts that mint chocolate chip lovers are compatible with one another

Rainbow sherbet lovers are pessimistic.

This flavor’s bright colors and fruity taste is no match for the downbeat attitude of those who choose it as their favorite. “We found that people who prefer rainbow sherbet are more pessimistic than you would think,” says Hirsch, who also found they’re analytic and decisive.
Rocky Road lovers are aggressive.

If this flavor-packed cone is your favorite, you’re most likely aggressive and engaging, but a good listener, according to Hirsch’s Baskin Robbins study. The Dreyer’s/Edy’s panel also determined that the goal-oriented Rocky Road lover is often successful, but sometimes aggressive behavior can “inadvertently hurt the feelings of those that surround him.”

Coffee lovers are dramatic.

If you’re lively, dramatic, and approach life with “gusto,” you’re probably a fan of coffee ice cream. Hirsch’s study for Dreyer’s/Edy’s says coffee ice cream fans are not concerned about the future and thrive on the “passion of the moment,” needing constant stimulation in a romantic relationship.

Chocolate chip lovers are generous.

If you choose classic chocolate chip, you’re generous, competent, and a go-getter, according to Hirsch’s survey for Baskin Robbins.

Butter pecan lovers are conscientious

Fans of this nutty flavor are devoted, conscientious, and respectful, according to Hirsch’s study for Dreyer’s/Edy’s. They hold high standards for right and wrong and are afraid of hurting people’s feelings.

Ice Cream
For an ice cream to really be a true ice cream it must contain no less than 10% milkfat. Many low-fat ice creams and certainly all fat-free ice creams are not true to the definition.

Custard
Is the same as ice cream except with a higher concentration of egg yolks, making the dessert richer. It can also be called French ice cream.

Gelato
Is known as Italian Ice Cream.  It can be made in the style of a premium ice cream , but it is distinct in that it incorporates less air than ice cream and tends to have a slightly lower butterfat percentage: 3-10%.  You can refreeze melted Gelato but not ice cream.

Sherbet
A frozen pasteurized mixture of fruit and water that can contain milk or another dairy ingredient. It contains between 1-2% milkfat.

Sorbet
Technically a sorbet is a water ice in terms of the FDA. Prepared the same as a sherbet except that it does not have to be pasteurized and it contains no milk or eggs, except possibly egg whites.

Mellorine 

This dessert is an ice cream-like substance made with vegetable or animal fat instead of butterfat.

A Department of Labor investigation can be expensive and time-consuming for employers who don’t maintain up-to-date records.

QUESTION: Can a disgruntled employee challenge his or her wage compensation through legal channels?

ANSWER: Yes! I recently completed a Wage and Hour Division (WHD) investigation through the U.S. Department of Labor. In this case, a restaurant employee challenged the overtime calculations of an employer after he was fired for misconduct on the job. The employer provided credible testimony that the claimant had received multiple reprimands for being rude to customers and not completing assigned tasks. It was determined that the claimant’s repeated instances of poor attitude and his failure to complete assigned tasks—despite repeated reprimands—constituted sufficient proof of intentional poor performance. Thus, he was denied unemployment compensation. But he still qualified for back wages due to overtime for which he hadn’t been compensated.

This required some tricky calculations, but, to make a long story short, the employee eventually received an additional $85 in wages for back compensation. Meanwhile, however, the employer and his advisers had to commit an enormous amount of time and effort to this WHD investigation, from countless reports to employee interviews and documentation of all wages paid by the employer over a two-year period. We estimated that it cost the employer nearly 38 man-hours and $1,850 in adviser fees. And it could have been worse: If an attorney had not been brought into this case, many additional employee interviews would have been carried out at the restaurant itself, causing disruption of the owner’s business practices and possibly upsetting other employees.

So how can you protect yourself in these cases? Here’s what I recommend:

• Keep current files—including frequent reviews—on all of your employees.
• If you can justify the costs, use an outside payroll service that has the ability to offer human resource suggestions, such as tip calculations.
• Provide an employee handbook to every person on your staff and make sure each person reads it and signs a copy of it.
• Implement and enforce a “three strikes” rule for actions that qualify as misconduct in connection with an employee’s work performance.
• Go the extra mile to keep employees aware of all wage and hour labor laws.
• Provide a work environment that allows employees to voice their opinions, which could help alleviate problems that come up later.

Hiring the wrong employee can be costly.

According to the Washington Restaurant Association, every time a restaurant turns an employee over it costs $5,125—and for a manager the costs are even more scary: $35,964.

And according to the Harvard Business Review, 80 percent of employee turnover is caused by bad hiring decisions.

So it’s important to do it right the first time.

Patrick Yearout, director of training for Ivar’s Restaurants, Seattle, spoke at the National Restaurant Association Show in Chicago last month about how his company performs interviews so they only have to do them once.

To read more about how Ivar’s looks for employee candidates and hires positive people read here and here.

It’s important to be prepared for all job interviews. So before the candidate arrives, make sure you have a job description written down, so you’re not swayed by other things on the resume or things the person will say.

Look at:

Their previous responsibilities

Their background

Is their experience credible?

Is their background relevant to the position?

How clear are their answers and explanations to questions?

Is the information current and are there any unexplained gaps in their work history?

Did the applicant hurry the process and do it right, in the way you asked?

Pay attention to the presentation of the application of resume. “If you’re making an effort to hire these people, they could make an effort,” Yearout says.

Did the applicant keep the application clean and neat?

Is their handwriting neat and easy to read?

Did they use professional fonts in a resume—is it easy to read?

Once you’ve moved beyond this stage and lined up some applicants for interviews, prepare well. Read candidates’ resumes before they come in, otherwise you’ll panic and ask just about anything. Also develop an agenda of questions so you can get the most out of it. “You can of course go off topic, that is natural progression, but come back to your agenda when you’re done,” Yearout says.

Questions To Ask:

1. The basics, the nonnegotiable, which the person must be able to meet.

These include ‘Do these hours work for you?’ and ‘Can you lift weights of XXX?’

2. Beyond the basics. These questions should be open-ended, which are designed to get the applicant talking.

“Ninety percent of the talking in an interview should be by the applicant,” Yearout says, “so ask open-ended questions; they’re your secret weapon to get them talking.” A negative attitude will show up here.

Examples of open-ended questions:

Tell me about your previous position.

Tell me about the atmosphere at your last position.

Tell me about your previous job.

3. Behavioral questions. Employees’ past behavior is the best predictor of their future behavior, Yearout explains. And be sure not to ask hypothetical questions, “because they can give the perfect answer.”

Examples of behavioral questions:

How did you improve employee morale at your last job?

What are some programs you instituted to improve guest counts?

4. Self-appraisal questions, which help you learn what a candidate learned.

Examples of self-appraisal questions:

How did that incident change you as a team leader?

What did you learn about yourself when confronting this problem?

Other good questions that Yearout suggests:

If you could change one thing about the restaurant industry what would it be and why? This allows you to find what people are most passionate about, he points out.

Why did you decide to apply here? This helps you identify people’s values.

What is important to you in a company?

Define great hospitality.

But be careful, there are many illegal questions that you need to avoid, because they are irrelevant to the position you’re hiring for, Yearout explains. These pertain to:

Age, though you can ask if you want to make sure a candidate meets your minimum age

Marital status and children

National origin

Race

Religion

Disabilities

Sexual orientation

Preparing for the interview

Always arrive on time for an interview. “The candidate’s time is just as important as yours, so don’t make a poor first impression by making them wait,” Yearout says. And take care of your personal needs like eating, drinking or using the bathroom beforehand, and don’t forget to turn off your cellphone.

Once you start the interview, make the candidate feel as comfortable as possible—introduce yourself and let him or her know what you do and your role in the hiring process; the job applicant should be offered a beverage then escorted to as private a place as possible.

Remember that you are conducting an interview and not an interrogation—your role is to learn about the candidates so let them do most of the talking.

If you notice that a person is nervous, try putting him or her at ease by asking some easy questions—about hobbies, for example.

Yearout cautions that when you’re conducting an interview, don’t make any promises you can’t keep, but also pay attention to red flags. “When you’re interviewing someone, this is their opportunity to shine,” he says. “If they can’t impress you once they’re putting their best foot forward, do you think it’s going to get any better on the job?”

Some red flags to look out for:

Negative answers, criticizing past employers

A poorly groomed or dressed job applicant

Arriving late

Lacking enthusiasm or energy

Stresses importance of money

Has no knowledge of your restaurant or the industry

Giving vague or unfocused answers

Acting conceited or as a know it all

Lacking confidence or praise

Lacking evidence of career planning

Unwilling to start at the bottom and wanting too much from the get-go

Experience in person doesn’t match the experience on the application

He or she begins by discussing a job not on the application

Rude or ill-mannered

Lack of professionalism or overly casual behavior

Expressing strong prejudices

As you close out the interview, be courteous with the candidate, Yearout says,
“because if you can’t hire them, you want to keep them as a guest.”

You might also want to ask the applicant:

What is the one reason I should hire you above anyone else?

Is there anything else you would like to tell me about yourself?

Can I answer any questions for you?

How to make the hiring decision

As you consider various applicants for a job, keep the job requirements and responsibilities in mind as you evaluate the contenders, Yearout says. Also keep

the applicant’s future potential in mind. “You want someone to stay for a long time and move up the ladder,” he adds.

And if none of the candidates impressed you? “Don’t hire someone merely because there is not a suitable applicant and do not be influenced to overlook an applicant’s shortcomings,” Yearout says. “It’s much more costly to hire the wrong person.”

You can always have some help in choosing who to hire, especially if more than one job applicant stands out. You might bring in your supervisor or your district manager to help you make a decision, or if you have several restaurants, you may be able to refer a candidate to another locations

And a final word of warning from Yearout: Do not commit yourself to employ an applicant until you have covered every phase in the background checks.

Once you’ve decided which person to hire, contact him or her first, in case he or she has found a new job.

Then contact the remaining people. Thank them and wish them well. If they ask why they weren’t hired, simply tell them that someone else was more qualified, “but don’t get too detailed,” Yearout says.

By Amanda Baltazar

A Department of Labor investigation can be expensive and time-consuming for employers who don’t maintain up-to-date records.

QUESTION:
Can a disgruntled employee challenge his or her wage compensation through legal channels?

ANSWER:
Yes! I recently completed a Wage and Hour Division (WHD) investigation through the U.S. Department of Labor. In this case, a restaurant employee challenged the overtime calculations of an employer after he was fired for misconduct on the job. The employer-provided credible testimony that the claimant had received multiple reprimands for being rude to customers and not completing assigned tasks. It was determined that the claimant’s repeated instances of poor attitude and his failure to complete assigned tasks—despite repeated reprimands—constituted sufficient proof of intentional poor performance. Thus, he was denied unemployment compensation. But he still qualified for back wages due to overtime for which he hadn’t been compensated.

This required some tricky calculations, but, to make a long story short, the employee eventually received an additional $85 in wages for back compensation. Meanwhile, however, the employer and his advisers had to commit an enormous amount of time and effort to this WHD investigation, from countless reports to employee interviews and documentation of all wages paid by the employer over a two-year period. We estimated that it cost the employer nearly 38 man-hours and $1,850 in adviser fees. And it could have been worse: If an attorney had not been brought into this case, many additional employee interviews would have been carried out at the restaurant itself, causing disruption of the owner’s business practices and possibly upsetting other employees.

So how can you protect yourself in these cases? Here’s what I recommend:

Keep current files—including frequent reviews—on all of your employees.

If you can justify the costs, use an outside payroll service that has the ability to offer human resource suggestions, such as tip calculations.

Provide an employee handbook to every person on your staff and make sure each person reads it and signs a copy of it.

Implement and enforce a “three strikes” rule for actions that qualify as misconduct in connection with an employee’s work performance.

Go the extra mile to keep employees aware of all wage and hour labor laws.

Provide a work environment that allows employees to voice their opinions, which could help alleviate problems that come up later.

When employers withhold taxes from tipped employees’ paychecks, they base the amount withheld on both the tip income and cash wages employees receive. Sometimes tipped employees’ paychecks may not be big enough for the employer to withhold all the required income and payroll taxes. In this “$0 paycheck” situation, here are a few tips for employers and employees:

Employers: Be sure you are withholding all taxes in the proper order. State and federal laws set a particular order for withholding taxes. Check with your accountant or payroll service to make sure you’re doing it right.

Employers: Let your employees know that you weren’t able to withhold all the required taxes. They may want to set aside some extra money, or give you extra funds to apply toward these taxes, so they don’t get socked at tax-time with a bigger tax bill because not enough taxes were withheld throughout the year.

Employers: If you’re not able to withhold the full amount of federal FICA (Social Security and Medicare) taxes due on reported tips, you are required to note this as “uncollected Social Security taxes on tips” on the employee’s W-2 form.

Employees: If you’re receiving $0 paychecks, be aware that you may owe more in taxes than you expect when you file your returns in April. Some tip-earners save a few extra dollars over the year so they don’t get caught short at tax time. Better yet, many tipped employees give extra money to their employers to apply to their tax withholding. This helps avoid any estimated-tax penalties.

Owners must take care to determine a “reasonable”—and deductible—compensation for themselves and other shareholders.

Question:

What’s the best way to set my salary from my S corporation restaurant entity?

Answer:

As the owner of an incorporated business, you’re probably aware that there’s a tax advantage to taking money out of the corporation as compensation (salary and bonus) rather than as dividends. The reason is simple: A corporation can deduct the compensation that it pays, but it can’t deduct dividend payments. Thus, if funds are withdrawn as dividends, they’re taxed twice—once to the corporation and once to the recipient. Money paid out as compensation is taxed only once—to the employee who receives it.

However, there’s a limit on how much money you can take out of the corporation in this way. The law says that compensation can be deducted only to a reasonable extent. Any unreasonable portion is nondeductible and, if paid to a shareholder, may be taxed as if it were a dividend. As a practical matter, the IRS rarely raises the issue of unreasonable compensation unless the payments are made to someone “related” to the corporation, such as a shareholder or a member of a shareholder’s family.

How much compensation is considered “reasonable”? There’s no simple formula. The IRS tries to determine the amount that similar restaurants would pay for comparable services under like circumstances. Factors may include the employee’s duties; the amount of time required to perform those duties; the employee’s abilities and accomplishments; the complexities of the business; the gross and net income of the business; the employee’s compensation history; and the corporation’s salary policy for all of its employees.

There are a number of concrete steps you can take to make it more likely that the compensation you earn will be considered “reasonable” and, therefore, deductible by your corporation. For example, you can:

•  Use the minutes of the corporation’s board of directors to contemporaneously document the reasons for the amount of compensation paid. For example, if compensation is being increased in the current year to make up for earlier years in which it was too low, be sure that the minutes reflect this change and the reason for it.

•  Avoid paying compensation in direct proportion to the stock owned by the corporation’s shareholders. This looks too much like a disguised dividend and will probably be treated as such by IRS.

•  Keep compensation in line with what similar restaurants are paying their waitstaff and managers. Hold on to any supporting evidence that you may acquire in case the IRS questions you about it later.

•  If the business is profitable, be sure to pay at least some dividends. This avoids creating the impression that the corporation is trying to pay out all of its profits as   compensation.

Finally, be aware that Form 1120S, Line 7, reports compensation to officers received from your restaurant operations. The IRS scrutinizes all tax returns that have a zero amount on this line, and we are told that these returns are frequently selected for inspection. This may lead to an eventual audit, so make sure that you have paid yourself a reasonable compensation if you are the shareholder of your entity.

Well-organized records and a transparent, proactive approach will boost your credibility with auditors.

QUESTION:

How can I know if my accountant has prepared me for a possible sales tax audit?

ANSWER:

In the case of an audit of one of my firm’s clients in California, covering the tax years 2010 to 2012, the following documents had to be submitted: •  Sales and use tax returns, including related worksheets •  General ledger and related journals supporting tax 
return calculations •  Sales invoices and cash register tapes (if applicable) •  Purchase invoices (paid bills) for consumable supplies and fixed assets (i.e., furniture, fixtures and equipment) •  Documentation supporting claimed exempt sales (i.e., resale certificates and freight bills) •  Federal income tax returns, including depreciation schedules •  Property tax statements •  Sales invoices for fixed assets sold during the audit period

For our first meeting with the auditor, we organized everything on a CD and even prepared a Net Sales Calculation. We provided an Excel worksheet with documentation that concurred with the POS system’s record of net sales as well as the quarterly financial records, the quarterly sales tax filings and each year’s federal income tax returns. Our proactive and transparent approach boosted our credibility with the auditor.

We also provided a sample daily sales report from the POS system and accounting records that offered a road map of the sales calculation flow from daily sales to quarterly sales tax filings. By illustrating our method of following state procedures, we had to spend less time educating the agent and defending our filings.

This proactive approach should be part of your monthly, quarterly and annual accounting procedures so you’ll be prepared for an audit. Don’t wait to see if your accountant has assembled documents in a way that would defend a sales-and-use tax audit. While you are completing year-end tax returns, simply ask the question, “Are we ready for an audit?”

QUESTION:

Are gross receipts from some restaurant supplies purchased for resale exempt from state sales tax?

ANSWER:

As a general rule, some items are exempt, and others are not. Here in Arkansas, exempt items include paper, plastic and Styrofoam cups used for dispensing beverages as well as paper and plastic lids; paper and plastic bowls, paper boats, boxes and containers used for dispensing food items; and the wrappers for these bowls, boats, boxes and containers.

Nonexempt items include paper plates; paper and plastic straws and stirrers; plastic tableware and utensils; paper napkins; paper sacks; and premoistened towelettes.

However, restaurants that use paper plates or other containers may purchase the plates or containers exempt as a sale for resale. In other words, if your supplier charges sales tax on these items, you can obtain a valid resale certificate in your state and provide it to your supplier; this will ensure that you don’t have to pay sales tax once when buying these items and again when you charge the customer and collect the tax. Regardless, state tax laws vary, so you must consult with an accountant in your state to get all the facts.

Operators need to familiarize themselves with new IRS rules.

Question:

Does Form 1099-K for credit card payment reporting apply to restaurants?

Answer:

Yes, and this will be very important to restaurant operators. In legalese, a payment settlement entity (PSE) must file Form 1099-K for payments made in settlement of reportable payment transactions for each calendar year. A reportable payment transaction is any payment-card or third-party-network transaction in which the PSE submits the instruction to transfer funds to the account of the participating payee.

Form 1099-K identifies the gross amount of the total reportable payment transactions for each participating restaurant with a unique merchant account number, without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.

Why should you be concerned about this? Beginning in 2012, the payments an S corporation receives through merchant cards (for example, VISA and MasterCard) or third-party networks (Paypal and Google Checkout) must be reported separately from other receipts. These receipts are reported on line 1a, “Merchant card and third-party payments.” The S corporation should receive a Form 1099-K showing the amount of such payments. However, a Form 1099-K may not be received for all such payments; the payer must file a Form 1099-K only when payments exceed $20,000 and the total number of transactions exceeds 200. Regardless of whether a Form 1099-K is received, all such receipts should be reported on line 1a.

What’s really important to keep in mind is that, as of tax year 2012, a restaurant owner is now required to separate sales between cash and credit card payments when reporting net sales to the IRS. Several matching issues arise during the accumulation of data for this process.

For starters, if the credit card sales reported for a restaurant’s gross income on the tax return differs from the total of all Form 1099-Ks received from these PSEs, the IRS will generate an automated notice asking for an explanation.

Restaurant operators will need to take steps to comply with the new rules. By using a point-of-sale system that captures daily credit card sales accurately, the matching process can be handled with comparative ease. You must make sure that your tax files match the amounts being reported on Form 1099-K. In addition, make sure that the PSE that handles your credit card processing has your operation’s correct address so you’ll always receive the data that the PSE reports to the government.

Additionally, for cash-based businesses, many restaurants report only credit card transactions as reportable gross income on their tax returns. But, by separating out the credit card receipts from cash receipts, the IRS is now creating data by SIC code (that is, industry classification, such as 722110 for limited-service restaurants) from all Form 1099-Ks issued and the associated tax returns received. We have been told that inquiry notices will be sent to taxpayers who deviate from an acceptable range of a percentage of credit card sales to total receipts. So, when a restaurant reports 100% of credit card sales and no cash sales, they might receive a notice from the IRS asking for an explanation!

We recommend preparing a daily reporting system that clearly identifies cash and credit card receipts so that, in the case of an audit or inquiry, these reconciliation sheets and work papers can be submitted for proof to the IRS, creating a road map on reportable gross receipts for your restaurant.

Tips on dealing with credit card processors.

QUESTION:

How can I get a better deal from my credit card processor?

ANSWER:

You can start by shopping around. If it has been six months or more since you last received a quote from your current merchant service provider, you should take a little time to reach out and contact other providers. As most of you have experienced, it won’t take long before some aggressive salesperson will turn up and promise you the moon.

To get started, compare your rates and fees on a transaction category basis. For example, card-present transactions incur a lower fee than corporate cards. To ensure accuracy, the provider will need copies of your merchant’s statements from the past three months for the purpose of comparison; ask specifically for an annual savings calculation. Additionally, you’ll want to make sure that you familiarize yourself with your current provider’s termination fees in case you decide to make a switch, and make sure you fully understand the new provider’s termination fees before making your final decision.

Of course, you’ll also want to make sure that your equipment is compatible with the new provider’s requirements. Finally, ask the new provider if you will have the ability to view your daily transactions online, batch by batch; using this approach, you will be able to monitor your merchant fees as you go along rather than having to wait until the end of each month. In this era of “big data,” you have every right to receive your data from the provider in a timely manner that allows you to keep a close watch on it.

Owners must take care to determine a “reasonable”—and deductible—compensation for themselves and other shareholders.

Question:

What’s the best way to set my salary from my S corporation restaurant entity?

Answer:

As the owner of an incorporated business, you’re probably aware that there’s a tax advantage to taking money out of the corporation as compensation (salary and bonus) rather than as dividends. The reason is simple: A corporation can deduct the compensation that it pays, but it can’t deduct dividend payments. Thus, if funds are withdrawn as dividends, they’re taxed twice—once to the corporation and once to the recipient. Money paid out as compensation is taxed only once—to the employee who receives it.

However, there’s a limit on how much money you can take out of the corporation in this way. The law says that compensation can be deducted only to a reasonable extent. Any unreasonable portion is nondeductible and, if paid to a shareholder, may be taxed as if it were a dividend. As a practical matter, the IRS rarely raises the issue of unreasonable compensation unless the payments are made to someone “related” to the corporation, such as a shareholder or a member of a shareholder’s family.

How much compensation is considered “reasonable”? There’s no simple formula. The IRS tries to determine the amount that similar restaurants would pay for comparable services under like circumstances. Factors may include the employee’s duties; the amount of time required to perform those duties; the employee’s abilities and accomplishments; the complexities of the business; the gross and net income of the business; the employee’s compensation history; and the corporation’s salary policy for all of its employees.

There are a number of concrete steps you can take to make it more likely that the compensation you earn will be considered “reasonable” and, therefore, deductible by your corporation. For example, you can:

•  Use the minutes of the corporation’s board of directors to contemporaneously document the reasons for the amount of compensation paid. For example, if compensation is being increased in the current year to make up for earlier years in which it was too low, be sure that the minutes reflect this change and the reason for it.

•  Avoid paying compensation in direct proportion to the stock owned by the corporation’s shareholders. This looks too much like a disguised dividend and will probably be treated as such by IRS.

•  Keep compensation in line with what similar restaurants are paying their waitstaff and managers. Hold on to any supporting evidence that you may acquire in case the IRS questions you about it later.

•  If the business is profitable, be sure to pay at least some dividends. This avoids creating the impression that the corporation is trying to pay out all of its profits as   compensation.

Finally, be aware that Form 1120S, Line 7, reports compensation to officers received from your restaurant operations. The IRS scrutinizes all tax returns that have a zero amount on this line, and we are told that these returns are frequently selected for inspection. This may lead to an eventual audit, so make sure that you have paid yourself a reasonable compensation if you are the shareholder of your entity.

Well-organized records and a transparent, proactive approach will boost your credibility with auditors.

How can I know if my accountant has prepared me for a possible sales tax audit?

ANSWER:

In the case of an audit of one of my firm’s clients in California, covering the tax years 2010 to 2012, the following documents had to be submitted: •  Sales and use tax returns, including related worksheets •  General ledger and related journals supporting tax 
return calculations •  Sales invoices and cash register tapes (if applicable) •  Purchase invoices (paid bills) for consumable supplies and fixed assets (i.e., furniture, fixtures and equipment) •  Documentation supporting claimed exempt sales (i.e., resale certificates and freight bills) •  Federal income tax returns, including depreciation schedules •  Property tax statements •  Sales invoices for fixed assets sold during the audit period

For our first meeting with the auditor, we organized everything on a CD and even prepared a Net Sales Calculation. We provided an Excel worksheet with documentation that concurred with the POS system’s record of net sales as well as the quarterly financial records, the quarterly sales tax filings and each year’s federal income tax returns. Our proactive and transparent approach boosted our credibility with the auditor.

We also provided a sample daily sales report from the POS system and accounting records that offered a road map of the sales calculation flow from daily sales to quarterly sales tax filings. By illustrating our method of following state procedures, we had to spend less time educating the agent and defending our filings.

This proactive approach should be part of your monthly, quarterly and annual accounting procedures so you’ll be prepared for an audit. Don’t wait to see if your accountant has assembled documents in a way that would defend a sales-and-use tax audit. While you are completing year-end tax returns, simply ask the question, “Are we ready for an audit?”

QUESTION:

Are gross receipts from some restaurant supplies purchased for resale exempt from state sales tax?

ANSWER:

As a general rule, some items are exempt, and others are not. Here in Arkansas, exempt items include paper, plastic and Styrofoam cups used for dispensing beverages as well as paper and plastic lids; paper and plastic bowls, paper boats, boxes and containers used for dispensing food items; and the wrappers for these bowls, boats, boxes and containers.

Nonexempt items include paper plates; paper and plastic straws and stirrers; plastic tableware and utensils; paper napkins; paper sacks; and premoistened towelettes.

However, restaurants that use paper plates or other containers may purchase the plates or containers exempt as a sale for resale. In other words, if your supplier charges sales tax on these items, you can obtain a valid resale certificate in your state and provide it to your supplier; this will ensure that you don’t have to pay sales tax once when buying these items and again when you charge the customer and collect the tax. Regardless, state tax laws vary, so you must consult with an accountant in your state to get all the facts.

Operators need to familiarize themselves with new IRS rules.

Question:

Does Form 1099-K for credit card payment reporting apply to restaurants?

Answer:

Yes, and this will be very important to restaurant operators. In legalese, a payment settlement entity (PSE) must file Form 1099-K for payments made in settlement of reportable payment transactions for each calendar year. A reportable payment transaction is any payment-card or third-party-network transaction in which the PSE submits the instruction to transfer funds to the account of the participating payee.

Form 1099-K identifies the gross amount of the total reportable payment transactions for each participating restaurant with a unique merchant account number, without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.

Why should you be concerned about this? Beginning in 2012, the payments an S corporation receives through merchant cards (for example, VISA and MasterCard) or third-party networks (Paypal and Google Checkout) must be reported separately from other receipts. These receipts are reported on line 1a, “Merchant card and third-party payments.” The S corporation should receive a Form 1099-K showing the amount of such payments. However, a Form 1099-K may not be received for all such payments; the payer must file a Form 1099-K only when payments exceed $20,000 and the total number of transactions exceeds 200. Regardless of whether a Form 1099-K is received, all such receipts should be reported on line 1a.

What’s really important to keep in mind is that, as of tax year 2012, a restaurant owner is now required to separate sales between cash and credit card payments when reporting net sales to the IRS. Several matching issues arise during the accumulation of data for this process.

For starters, if the credit card sales reported for a restaurant’s gross income on the tax return differs from the total of all Form 1099-Ks received from these PSEs, the IRS will generate an automated notice asking for an explanation.

Restaurant operators will need to take steps to comply with the new rules. By using a point-of-sale system that captures daily credit card sales accurately, the matching process can be handled with comparative ease. You must make sure that your tax files match the amounts being reported on Form 1099-K. In addition, make sure that the PSE that handles your credit card processing has your operation’s correct address so you’ll always receive the data that the PSE reports to the government.

Additionally, for cash-based businesses, many restaurants report only credit card transactions as reportable gross income on their tax returns. But, by separating out the credit card receipts from cash receipts, the IRS is now creating data by SIC code (that is, industry classification, such as 722110 for limited-service restaurants) from all Form 1099-Ks issued and the associated tax returns received. We have been told that inquiry notices will be sent to taxpayers who deviate from an acceptable range of a percentage of credit card sales to total receipts. So, when a restaurant reports 100% of credit card sales and no cash sales, they might receive a notice from the IRS asking for an explanation!

We recommend preparing a daily reporting system that clearly identifies cash and credit card receipts so that, in the case of an audit or inquiry, these reconciliation sheets and work papers can be submitted for proof to the IRS, creating a road map on reportable gross receipts for your restaurant.

Eight tips for employers and employees about reporting tips.

What you need to know if you earn tips …

1. 100% is the magic number: All tips are taxable.
If you earn tips, be aware that if you receive more than $20 in a month in tips, ALL these tips count as income that you must report and pay taxes on. That includes your cash tips, your charge-card tips, and any tips you get from other employees, minus what you tip out to others.

You may have heard all you need to do is report tips equal to 8% of sales, or 10%, or just your charge-card tips. That’s a big misconception, and could get you in legal trouble if you earn more. The law requires you to report and pay taxes on 100% of the tips you keep after tip-outs. See more on the “8% myth”, below.

2. Employees must record their tips daily.
If you get audited, there’s only one thing that’ll save you: good daily records. The IRS requires tipped employees to keep a daily tip diary or other evidence to prove tip earnings. Your daily records must show how much you made in cash tips and charge-card tips; the amount of tips you received from other employees through tip pools or other tip-sharing arrangements; and the amount tipped out to other employees.

While you’re not required to use the IRS’s forms to keep track of your tips, the IRS offers Form 4070A, Employee’s Daily Record of Tips, that you can use as your personal tip diary. Call the IRS at (800) TAX-FORM

3. Employees must report their tips to their employer.
Anyone who receives $20 or more in tips in a month must report all tips to their employer by no later than the 10th day of the following month. (Employers may require employees to report tips more often, like every week or at the end of every shift.)

This requirement applies both to directly tipped employees, such as servers who get tips directly from customers, as well as to indirectly tipped employees, such as busers, who may share in these tips. An employee’s written tip report must include certain information: Check out IRS Form 4070, Employee’s Report of Tips to Employer, for details.

4. Not reporting your tips is a big deal.
If the IRS audits you and finds out you didn’t report all your tips, you could be facing some big bills. Falsifying tip income is illegal. You’ll owe income and FICA (Social Security and Medicare) taxes on the unreported tips. You’ll probably be stuck with interest and penalties. What’s more, the IRS has the right to audit at least as far back as three years — or further, if the agency believes it’s a case of fraud. Some restaurant servers have even been jailed for tax evasion.

What you need to know if you employ tipped workers …

1. You are required to gather employees’ tip reports.
The IRS requires any employee who receives more than $20 per month in tips to report those tips to his or her employer at least once a month. Tip reports are due to employers by no later than the 10th of the month for the previous month’s tips. Employers can require reports even more frequently, such as at the end of every shift, every day, or every week. The IRS requires specific information in employee tip reports. IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employercontains a form employees can use. Download the publication in English (PDF) or Spanish (PDF) from the IRS Website.

2. You must report your employees’ tips to the IRS and withhold taxes.
Employers are required to pay the employer’s share of payroll taxes on tips, plus withhold all the required income and FICA and other payroll taxes on wages and reported tips from wages actually paid the employee.

At the end of each year, employers are required to total each employee’s reported tips for the year and record this amount on the employee’s W-2 form as “wages,” along with cash wages. In some cases, employers will also be required to “allocate” tips to certain employees on employees’ W-2 forms if they have not reported a sufficient amount of tips; read on for more information.

3. Certain employers must file Form 8027 with the IRS — and, in some cases, “allocate” tips.
If your restaurant meets three criteria — (1) tipping is customary in your establishment, (2) you serve food and drink for on-premises consumption, and (3) you employ more than ten employees or their equivalent (more than 80 employee hours) on a typical day — you must file IRS Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, with the IRS each February. On this form, you report annual totals for your restaurant’s sales, charge-card sales, charge-card tips, and reported tips.

If you are an 8027 filer and the total tips your employees report for the pay period or the year don’t add up to 8% of your restaurant’s sales, you must also go through what’s called “tip allocation.” This process — which points the IRS toward restaurants where employees may not be reporting all their tips — requires you to “allocate” tips to any directly tipped employees who reported tips of less than 8% of his or her sales. You do not withhold taxes on allocated tips. You simply show total allocated tips on your Form 8027, and note the allocations to specific employees on their W-2 Forms. Allocation can get complicated: Check the Form 8027

4. A word to the wise: Employers, educate your employees!
No restaurateur wants to be in the business of policing employees’ tip reports, since it’s the employees’ responsibility to report and pay taxes on their tips. However, there’s good reason for employers to make sure employees understand 100% tip reporting: Underreporting can make both you and your employees vulnerable to an IRS audit. The law says employers owe FICA taxes on all the tips their employees receive, whether they are reported or not.