Brian’s 24 is a 24-hour diner located in downtown San Diego’s Gaslamp Quarter. This family-owned food enterprise is more challenging to operate compared to other restaurants, because they’re always open and they’re always staffed.

The owner of the diner recently found out that the person they hired to manage their finances is actually an attorney and not an accountant or bookkeeper. Although the lawyer was able to prepare their taxes throughout the period he was working for the client, he was not able to perform a number of important tasks and missed a few vital details. Moreover, the attorney did not have adequate experience in providing bookkeeping services to restaurants, and this client has more challenges running their business compared to other restaurants because they are always open and always staffed.

The client discontinued the working relationship with the attorney, and they reached out to us. Our team of bookkeeping experts was happy to help the client with their finances. Here are a few of the activities that our bookkeepers performed for them:

1. Amend Prior Returns and Report FICA Tax to Credit

Small business owners have a lot of payroll tax withholding and payment obligations. One that companies consider very important is the Federal Insurance Contributions Act (FICA) tax. FICA is the federal law that requires employers to withhold a certain percentage from the wages of their employees to pay for their Social Security and Medicare taxes.

Ideally, restaurant owners should claim the tips that they receive from their businesses. These tips should be reported to the payroll, and the employers must pay the corresponding tax. The amount that entrepreneurs are obliged to pay is typically seven and a half percent of the wages they give to their workers. To encourage these business owners to be compliant to this regulation, the Internal Revenue Service grants a tax credit to the employer. This means that by compliantly reporting tips and paying the equivalent FICA tax, business owners earn a tax credit back. The amount that these entrepreneurs gain can be substantial. There are many cases where the restaurant owner receives thousands of dollars of tax credit.

The lawyer who did their bookkeeping was not aware of the FICA tax to credit. When our experts came in, they amended the client’s previous returns and generated thousands of dollars in FICA tax credits for her. The restaurant owner received refunds back in tax, and she was very pleased with our services.

2. Preparing and Filing Form 8027

A few years ago, the Internal Revenue Service began to require all large restaurant businesses in California to annually complete and file a document called form 8027. The purpose of this new requirement is for the IRS to determine whether these establishments are truthfully reporting the tips that they have received or not. If a food enterprise has 10 or more workers, they must comply with this regulation. Brian’s 24 falls under this category of businesses.

A prudent restaurant owner should report all the tips that have come in through their business, breaking out cash tips from credit card tips. The IRS checks for the overall relationship of the tips declared. For example, if the credit card tips are at 12% while the cash tips are at 2%, they’re going to suspect that the owner is not reporting all their cash tips.

Our team of bookkeeping experts helped the client prepare their form 8027 properly. The IRS did not find any discrepancy in the declared tips. The restaurant owner was thankful that she reached out to Profitwise Accounting for help. Seeking a bookkeeping specialist is one of the wisest decisions an entrepreneur can make.

3. Organized Their QuickBooks File

Although the client was using QuickBooks for her business, she was not using the software correctly. Her restaurant’s balance sheet did not tie back to her tax returns.

Bookkeeping experts from Profitwise Accounting helped put the client’s QuickBooks file in order. In the process of cleaning up the system, our bookkeepers amended the company’s previous tax returns so that there is consistency and congruency in all the reports.

The restaurant has all their accounting performed internally by their onsite bookkeeper. They input data, like weekly sales, in QuickBooks and pay bills on their own. On a monthly basis, our bookkeeping specialists review their file to check if their reports are completed properly. Our team of experts are like an outsourced CFO that makes sure that the accounting side of the business is covered. Every quarter, our team meets with the client to assess their financials and go over the questions that they might have regarding their files.

At the end of our onboarding project, the team at Profitwise had:

  • Amended prior year tax returns
  • These amendments generated thousands of dollars in tax credits for the restaurant
  • Filed Tip Reporting Form 8027 to resolve the ratio discrepancy from Cash to Credit Card transactions. This ratio is a red flag and can kick-off audits. 
  • Corrected the existing books to properly tie back to their tax returns
  • Balanced their Balance Sheet for accurate reporting and understanding of their financials/profitability

Brian's 24 was with Profitwise from 2013 until they sold their business in 2021.