10 Tax Planning Strategies for Grocers

  • Industry trends
  • 1/30/2025
Workers checking lettuce shipment in warehouse

Key insights

  • Grocers can benefit from accelerated depreciation for fixed asset purchases, which can significantly reduce taxable income.
  • Using employee tax credits, like the Work Opportunity Tax Credit, can provide substantial tax savings.
  • Pass-through entities can take advantage of the QBI deduction, which can reduce taxable income by up to 20%.
  • Donating unsellable food to local charities can offer additional tax deductions, including a portion of the retail markup.

Learn how your store can benefit from strategic tax planning.

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Although the year has already started, grocers can still plan their income taxes for last year and prepare for this one. While many tax provisions may expire soon, there is now more clarity on this issue you can use for planning.

Taking advantage of tax strategies expected to remain available throughout this filing season and applying existing programs can help enhance your benefits and position your retail organization for future growth.

1. Consider using accelerated depreciation benefits

Did you make fixed asset purchases during the year? Consider using bonus depreciation, which is at 60% for qualified purchases for 2024 (down to 40% for 2025). Section 179 deductions can also be used up to $1.22 million to reduce overall taxable income (up to $1.25 million for 2025 tax years), but this deduction is sometimes less desirable due to phase-outs.

Maybe you did a store remodel or added a completely new store? Cost segregation savings may be available for bigger expenses such as real estate, large leasehold improvement projects, and renovations. Cost segregation studies can result in an accelerated first year tax deduction when considering the various components of a larger asset.

2. Take advantage of employment tax credits

Employee tax credits can be a tremendous benefit to your overall tax picture. The Work Opportunity Tax Credit provides up to $9,600 annually per qualified employee from targeted categories (if they’re employed at least 120 hours).

The Federal Empowerment Zone credit provides up to $3,000 annually per qualified employee who lives and works in the zone. If you haven’t implemented this program in the prior year, now is a great time to start so any qualified new hires can be included in the annual credit calculation.

3. Use the qualified business income (QBI) deduction

If your business entity is a pass-through (partnership or S corporation), you can take advantage of the QBI deduction. This deduction (up to 20% of taxable income) looks at total wages as well as the basis of qualified property held by the business in determining the total deduction at the personal tax level.

If your business uses subcontractors rather than employees, this may be a good time to look at your business model and consider how it affects this deduction’s calculation.

4. Review your retirement plan

Review your retirement plan to make the most of this benefit, not only for your employees but also for you as the business owner. Retirement plans can be structured in many ways to increase benefits as well as tax savings.

5. Review year-end expense opportunities

Consider bonuses for key managers and employees to help reduce overall taxable income as well as reward those who contributed to the bottom line. These bonuses may be able to be accrued if paid soon after year-end, if the bonuses relate to the prior year’s performance.

6. Charitable food contributions

Many grocers donate unsellable food to local food pantries and other nonprofits. This may provide an opportunity to not only deduct the cost of those products, but also a portion of the retail markup.

To take advantage of this additional deduction, track the product cost and normal retail price and get a remittance from the charitable organization indicating certain information. There’s still time to look back at the prior year and gather this information, but also set up tracking procedures for the current year.

7. Incorporate personal tax planning

For pass-through business owners, the business may be the largest portion of your tax plan — but don’t let wages or investment income create a surprise in April. Incorporate this into your planning so filing time is a little less difficult on the proverbial wallet.

8. Converting inventory to LIFO (last in, first out)

It’s not too late to convert last year’s inventory to LIFO. This inventory valuation method is typically used by retailers, especially grocers, due to the historical trend of rising food prices. Essentially, if there is inflation, LIFO will provide a tax deferral. While inflation is not what it was a few years ago, there is typically steady inflation in the grocery industry. Converting your inventory to LIFO could provide a significant tax deferral and keep cash in the business to invest in other areas.

9. Purchase tax credits to offset your tax liability

Under the Inflation Reduction Act, certain tax credits can be purchased to offset tax liability, often for less than their face value. These credits, primarily aimed at promoting energy efficiency and renewable energy projects, can be transferred from entities that earned them but do not need them to offset tax liabilities.

By purchasing these credits at a discount, corporations can reduce tax liability more cost-effectively. This transferability allows for a market where tax credits can be bought and sold, providing financial flexibility and incentives for investing in sustainable energy solutions.

10. Work with advisors

Business and personal tax situations can vary. If you have questions, please reach out to your CPA to find out how these strategies may impact you.

How CLA can help with tax planning

CLA is committed to providing industry-specialized tax services to fit your distinct business challenges and opportunities. We can serve as your go-to resource on the latest tax incentives — whether it’s Section 199A, the R&D Tax Credit, or LIFO inventory — and help you strategically apply them to your situation.

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Learn how your grocery store can specifically benefit from strategic tax planning. Complete the form below to connect with CLA.

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