Client Profile
| Industry | Restaurant Group (Full-Service Dining) |
| Annual Revenue | $6,000,000 (3 locations) |
| Entity Type | Multi-Entity (3 Operating LLCs + Holding Co) |
| State | Ohio |
| Key Metric | 85 tipped employees across locations |
| Annual Tax Savings | $134,000 |
The Problem
This restaurant group operated three full-service dining locations under a single LLC. The owner had purchased the real estate for two of the three locations but held the properties inside the same operating entity as the restaurant business. With 85 tipped employees and annual revenue of $6 million, the group was generating approximately $720,000 in combined net income.
The owner's prior accountant handled compliance-only tax preparation and had never explored cost segregation on the owned buildings, had not claimed the FICA tip credit under IRC §45B, and had not evaluated whether any new hires qualified for the Work Opportunity Tax Credit under IRC §51.
AE Tax Strategy
1. Multi-Entity Restructuring Under IRC §1362 and §482
We separated the restaurant group into three operating LLCs (one per location, each taxed as S-Corps under IRC §1362), a real estate holding LLC, and a management company S-Corp. All intercompany transactions were documented at arm's-length rates under IRC §482, creating legitimate income-shifting opportunities and isolating liability.
2. Cost Segregation on Owned Buildings Under IRC §168
We commissioned cost segregation studies on both owned restaurant buildings (combined basis of $1.8 million). The studies reclassified approximately $540,000 in building components to 5-year, 7-year, and 15-year recovery periods. With bonus depreciation under IRC §168(k), this produced first-year accelerated depreciation deductions generating tax savings of $62,000.
3. FICA Tip Credit Under IRC §45B
We retroactively claimed and began ongoing optimization of the FICA Tip Credit under IRC §45B. With 85 tipped employees, the annual credit totaled approximately $48,000. We also filed amended returns for the three open prior years.
4. Work Opportunity Tax Credit Under IRC §51
We implemented a WOTC screening process for all new hires. Of the 32 employees hired during the year, 14 qualified under targeted groups. At an average credit of $1,700 per qualifying employee, this generated $24,000 in direct tax credits.
Before & After Comparison
| Tax Category | Before | After | Savings |
|---|---|---|---|
| Cost Segregation (Year 1) | $9,200 | $71,200 | $62,000 |
| FICA Tip Credit (IRC §45B) | $0 | $48,000 | $48,000 |
| WOTC (IRC §51) | $0 | $24,000 | $24,000 |
| Total | $9,200 | $143,200 | $134,000 |
Key Takeaways
- Restaurant owners who own their buildings should always evaluate cost segregation — restaurant interiors have a high percentage of 5-year and 15-year property.
- The FICA Tip Credit under IRC §45B is one of the most under-claimed credits in the restaurant industry.
- WOTC screening should be integrated into the hiring process as a standard step — the credit is available for 10 targeted groups.
- Multi-entity structuring isolates liability, enables intercompany transactions, and creates flexibility for future location sales.