The smallwares accounting method can only be used by persons engaged in the business of operating a restaurant or tavern that prepares food and beverages. It isn't available for new business start-up purchases of smallwares and does not apply to items purchased and stored at a warehouse or location other than the restaurant or tavern where the items are used. Use Form 3115, Application for Change in Accounting Method to elect this method. You may download Form 3115 and Revenue Procedure 2002-12.

Proposed federally-mandated increases in the starting wage

Position: The National Restaurant Association (NRA) strongly opposes the proposed federally-mandated increases in the starting wage. A dramatic increase in labor costs in a recovering economy will mean fewer jobs for entry-level workers, especially in labor-intensive industries such as restaurants.

Background: The 1938 Fair Labor Standards Act established a federal minimum wage for certain industries. The federal minimum wage was most recently increased in 1997, when it was brought to its current level of $5.15/hour.

The adverse impacts resulting from a minimum wage hike are concentrated on the least skilled employees who must compete with higher skilled and more experienced applicants attracted by the new wage. Workers employed at the minimum wage are typically those beginning their work careers. As these employees gain skills they receive significant raises, with more than 65 percent receiving a raise within 1-12 months. The median full-time minimum wage employee receives a 14 percent raise, nearly three times that of all employees.

Nationwide, 85 percent of those who would benefit from a minimum wage hike are teens living with their working parents, adults living alone, or second earners. Only 15 percent of the beneficiaries represent the sole earner in a household with children. The NRA continues to oppose any federally mandated increases in the starting wage. As such, the Association leads the Coalition for Job Opportunities, a group of more than 30 business organizations opposed to government-mandated increases in the entry-level wage.

Business Meals Make Business Deals

Position: The ability to conduct business over lunch or dinner is considered a primary marketing tool for most small businesses — business meals make business deals. It is a legitimate business expense and should be fully deductible, like other business expenses. Tax legislation has been introduced to fully restore this expense in full. Keep your eyes open for this when it becomes available. According to the NRA research, raising the deduction to 80 percent would boost business meal sales by $6 billion a year and create a $13 billion increase to the overall economy. See state-by-state impact if deductibility goes to 80 percent or 100 percent (PDF).

Background: When Congress reduced the meal and entertainment deduction in 1986, small business owners — who rely heavily on business meals to promote and grow their operations — were hit the hardest. Restaurants are the conference rooms for small businesses. According to a recent survey, restaurants were the number-one location for conducting meetings outside of the office. Fully two-thirds of business meal users are small business owners who rely on the business meal deduction to grow their businesses and stay competitive. The cut in the deduction resulted in a punitive and disproportionate tax increase on small businesses and the self-employed.

Who is entitled to receive overtime pay at time-and-a-half rates

What's the latest? New federal regulations went into effect on August 23, 2004, spelling out which employees are entitled to receive overtime pay at time-and-a-half rates under federal law after working 40 hours during a workweek. Background: The federal Fair Labor Standards Act (FLSA) exempts "executive, administrative and professional employees" from overtime-pay requirements under federal law. The updated overtime regulations provide clearer guidelines for both employers and employees regarding the overtime status of so-called "white collar" employees. The new rules replace regulations that had not been changed for over 50 years.

The NRA has published an overview (PDF) of the new regulations to help its members understand the changes and how to comply. In addition, the U.S. Department of Labor's Web site offers full details on the new regulations. The NRA urges Congress to let the new rules stand and opposes any attempt in Congress to derail the changes because:

• The old rules were very difficult to apply to today's service-based jobs, particularly in the restaurant industry.
• The Department of Labor's new regulations will help restaurateurs and their employees clearly understand how to classify managerial employees and will reduce costly lawsuits and attorney fees.

• The WOTC helps employers provide critical first step into the workforce for many unskilled and disadvantaged workers.
• Many employers find it difficult to rely on the credit because it is dependent on congressional approval and does not always gets extended before its expiration. This creates instability and hurts the very employees the credit is supposed to help.
• One out of every four restaurants in the U.S. has hired a WOTC-eligible employee, and nearly three out of four quick service operators have recently hired an employee who was a former welfare recipient.

• 44.5 cents per mile for business miles driven;
• 18 cents per mile driven for medical or moving purposes; and
• 14 cents per mile driven in service of charitable organizations, other than activities related to Hurricane Katrina relief.

• Deliberately underreporting or omitting income
• Overstating the amount of deductions
• Keeping two sets of books
• Making false entries in books and records
• Claiming personal expenses as business expenses
• Claiming false deductions
• Failing to pay over to the IRS employment taxes
• Hiding or transferring assets or income