Food Truck Taxes: What You Need to Know

Operating a food truck comes with tax responsibilities that differ from traditional restaurants. The mobile nature of the business introduces complexities, particularly in how taxes are calculated, collected, and paid across various government levels. Understanding the rules that apply to this industry is necessary for compliance. This guide provides an overview of the primary tax areas food truck owners must manage.

Core Operating Taxes on Business Profit

The primary taxes for a food truck are based on net profit, which is total revenue minus business expenses. At the federal level, this profit is subject to income tax. Owners must also pay self-employment tax, which covers Social Security and Medicare contributions and is calculated on Schedule SE.

The business’s legal structure influences how profit-based taxes are handled. A sole proprietorship reports income and expenses on Schedule C, filed with the owner’s personal Form 1040. An LLC can be taxed as a sole proprietorship, a partnership, or elect to be an S-Corporation. An S-Corporation structure allows the owner to take a salary and receive remaining profits as distributions, which are not subject to self-employment taxes.

Maximizing deductions reduces taxable profit. Common deductions for food trucks include:

• Cost of goods sold (COGS), which encompasses all direct costs of the food served, including ingredients, spices, and disposable packaging.
• Vehicle-related expenses, for which owners can deduct either the actual costs of operating the truck (fuel, insurance, repairs) or use the standard mileage rate set by the IRS for business miles driven.
• Fees for renting space in a commissary kitchen, which are required in many jurisdictions, as well as the costs of obtaining and renewing necessary permits and licenses.
• Large equipment like grills, refrigerators, or generators, which can be deducted over several years through a process called depreciation, spreading the tax benefit.

Transactional and Location-Based Taxes

Food truck operators must also manage taxes on individual sales and business assets. The most significant is sales tax, levied by state and local governments on prepared food. Owners must collect this tax from customers at the point of sale and remit it to the proper tax authorities.

The mobile nature of a food truck creates a sales tax challenge. Because rates can vary between cities, counties, and special taxing districts, a truck may need to collect different rates throughout a single day. For example, the rate at a lunch spot in one part of a county could be 7.5%, while an evening event in a neighboring city is 9.0%. This requires a precise system for tracking sales by location to ensure the correct amount of tax is paid to each jurisdiction.

Many states and localities impose additional taxes on prepared food and beverages, such as specific meal or beverage taxes. These are applied on top of the general sales tax. The definition of “prepared food” can also vary, with some jurisdictions taxing items like hot foods or carbonated beverages differently. Owners must be aware of these rules in every area they operate.

Food trucks are also subject to property tax on their business assets. The truck itself is the primary asset subject to this tax, but other valuable equipment may also be assessed. This tax is paid annually to the local government where the business is registered.

Payroll Tax Obligations for Employees

Hiring employees introduces a new layer of payroll tax responsibilities. These taxes are separate from income and sales taxes and are tied directly to employee wages. Bringing on even one part-time helper triggers these requirements.

The employer is responsible for paying their share of FICA taxes, which fund Social Security and Medicare. This amount is calculated as a percentage of employee wages. The employer’s portion matches the employee’s contribution, effectively doubling the total FICA tax sent to the government for each employee.

Employers must also pay federal (FUTA) and state (SUTA) unemployment taxes. FUTA tax is paid on a portion of each employee’s annual wages to fund the federal system. SUTA tax is paid to the state to fund its unemployment benefits, and the rate can vary based on the employer’s claims history.

Employers must also withhold taxes from employee paychecks. This includes the employee’s share of FICA taxes as well as federal and state income taxes. The employer holds these funds in trust before remitting them to the proper tax agencies.

Record-Keeping and Tax Payment Procedures

Meticulous records are the foundation of tax management for a food truck. A system for tracking all financial activities is a requirement. This includes logging every sale and all business expenses, which involves keeping receipts and categorizing costs like food supplies, fuel, and repairs.

To comply with varying sales tax rules, owners must track sales on a location-by-location basis. A modern point-of-sale (POS) system can automate this by using GPS to apply the correct local tax rate. To claim the standard mileage rate deduction, a mileage log detailing the date, odometer readings, and purpose of each trip is necessary.

For federal and state income taxes, most food truck owners must make quarterly estimated tax payments. These payments are due in April, June, September, and January to cover both income and self-employment tax liabilities. This pay-as-you-go system helps avoid a large tax bill and potential underpayment penalties.

Remitting collected sales tax follows a schedule determined by state and local agencies, with filing frequencies based on sales volume. The process involves filing a return that breaks down sales and taxes for each jurisdiction. Payroll tax deposits for federal taxes are made on a semi-weekly or monthly basis through the Electronic Federal Tax Payment System (EFTPS).