Tax and Accounting Help for Restaurants and Retail Stores

Restaurants and retail stores run on thin margins, high volume and constant small transactions. That makes accurate books more valuable than in most businesses, and it makes the business a natural subject for sales tax and payroll reviews. This page covers the tax and accounting issues that matter most to restaurant, cafe, bakery and shop owners in Naperville, Aurora and the rest of Chicagoland, including tip reporting, sales tax, cash controls, inventory and equipment.

Tips, payroll and Form 8027

Employers must withhold income tax and the employee share of Social Security and Medicare tax on reported tips, pay the employer share and report it on Form 941. Employees must keep a daily tip record. Service charges added automatically are wages, not tips, and are taxed through payroll. Voluntary tips that customers can set themselves are different.

An employer files Form 8027 for each large food or beverage establishment. That means one in the 50 states or D.C. where food or drink is served on the premises, tipping is customary, and the employer normally had more than 10 employees on a typical business day in the prior year. If reported tips are less than 8 percent of gross receipts (or an approved lower rate), the difference is allocated to tipped employees. Employers may claim the FICA tip credit on Form 8846 for the employer share of tax on certain tips.

For 2025 through 2028 employees can deduct up to $25,000 of qualified tips, and the IRS tipped occupation list includes wait staff, bartenders, chefs and cooks, fast food and counter workers, bakers and dishwashers. Service charges are qualified tips only if the customer can disregard or change them. Reporting for 2025 had penalty relief, but expect W-2 occupation codes and tip details. See tips and overtime reporting.

Sales tax in Illinois

Retailers register with the Illinois Department of Revenue and file Form ST-1 monthly, quarterly or annually, due the 20th of the following period. Businesses with an average monthly liability of $20,000 or more make quarter-monthly payments, and electronic payment is mandatory at $20,000 in annual liability. Different product categories can be taxed differently. Beginning January 1, 2026, local grocery tax applies to grocery sales, which matters to specialty food shops. Local taxes vary by city, so map every menu or product category to the correct rate in your point-of-sale system. When you sell to a business for resale, confirm that the buyer's resale number is active. For delivery apps, confirm who collects and remits tax on each order. See sales and use tax.

Cash, POS and what examiners look for

Cash-heavy businesses get attention. The IRS Manual tells examiners to test gross receipts by tying register tapes, receipts or invoices to the books, review bank deposits for unusual items and commingled funds, and use indirect methods such as bank deposits or markup analysis when records are weak. Warning signs include deposits higher than reported gross income, unusually low gross profit, and unexplained cash.

Practical controls:

• Run a daily Z-report and reconcile it to deposits and card settlements.
• Deposit receipts intact and do not pay expenses out of the till.
• Document cash over and short, voids, discounts and comps.
• Reconcile delivery-app payouts to gross sales and commissions.
• Track owner draws separately.

If you receive more than $10,000 in cash in one transaction or related transactions, such as for catering or a private event, file Form 8300 within 15 days.

Inventory and costs

Food cost, waste, spoilage and shrinkage are real expenses, but they must be supported. Count inventory at year end. A small business taxpayer with average annual gross receipts of $31 million or less (2025) can choose not to keep formal inventories and is exempt from the uniform capitalization rules; those who keep inventory generally use accrual accounting for it. Retailers should compare perpetual inventory records to physical counts, record returns and markdowns, and keep supplier invoices. See inventory and cost of goods sold.

Equipment, build-outs and leases

Ovens, hoods, displays and point-of-sale systems can often be written off quickly. Property acquired after January 19, 2025 qualifies for 100 percent bonus depreciation, and Section 179 allows up to $2,500,000 for 2025. Interior improvements to the leased space may also qualify for faster treatment, and the lease can affect who owns the improvements. Franchise fees are generally amortized rather than deducted at once. The rules for deducting employer-provided meals changed beginning in 2026, so ask how they apply to staff meals. See depreciation and Section 179.

Payroll for hourly teams

Track overtime accurately, use time clocks, collect Form W-4 and Form I-9 for every hire, and keep workers' compensation current. Misclassifying staff as contractors or paying cash wages off the books creates payroll tax exposure. See payroll services.

How we can help

We reconcile point-of-sale and card data, run payroll with tip reporting, file sales tax returns, prepare business returns and help owners obtain bank financing. See bookkeeping, accounting and financial statements and working capital and bank loans. This page is general information, not advice for your situation.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.