What expense category is Online Ordering and Third-Party Delivery Fees?

In today's restaurant landscape, partnering with third-party delivery platforms like DoorDash, Uber Eats, and Grubhub is essential for reaching customers. While these services drive significant sales, they also come with substantial commission and processing fees that can heavily impact a restaurant's profitability.

For accountants and restaurant owners, it is absolutely critical to account for these fees correctly. They are not simply a reduction of your sales; they are a distinct operating expense that must be reported accurately for tax purposes. This guide will clarify how to categorize these fees according to IRS rules to ensure your financial reporting is accurate and compliant.

Online Ordering and Third-Party Delivery Fees Category

The fees you pay to online ordering and third-party delivery platforms are an ordinary and necessary business expense. However, the single fee deducted from your payout is a combination of two different types of expenses that should be categorized separately on your books:

1. Commissions and Fees: The largest portion of the fee is a commission paid to the platform for marketing your restaurant and facilitating the sale. This is a deductible commission and fees expense.
2. Bank Fees / Other Expenses: A smaller portion of the fee is for the cost of processing the customer's credit card payment. This is a deductible Bank Fee, often tracked with your other merchant processing fees.

Important Considerations While Classifying Online Ordering and Third-Party Delivery Fees

The most critical factor for compliance and accurate reporting is to account for your gross sales and the platform's fees as two separate line items.

Gross vs. Net Reporting

This is the most important accounting rule. You cannot simply record the net deposit you receive from the delivery platform as your revenue. You must:

1. Record the full, gross amount of the sales (the menu price of the food) as revenue.
2. Record the total fees charged by the platform as a separate expense.

For example, if a customer orders $100 of food and the delivery platform charges a $25 fee, your books must show $100 in revenue and $25 in expenses, not just $75 in revenue.

Information Reporting on Form 1099-K

Third-party settlement organizations, like delivery platforms, are required to report the gross amount of the transactions they process on your behalf to the IRS and you, typically on Form 1099-K. Recording your gross sales correctly is essential for reconciling your books with the amounts reported to the IRS on this form.

Tax Implications and Recordkeeping

To deduct your delivery platform fees, you must report them correctly and maintain thorough documentation.

How to Report the Deduction

For a sole proprietor filing a Schedule C (Form 1040):

• The commission portion of the fee is deducted on Part II, Line 10, Commissions and fees.
• The credit card processing portion is included in the total for Line 27a, Other expenses, under a description like Merchant Processing Fees.

What Records to Keep

You must have documentary evidence to substantiate your fees. Your primary records will be the:

• Monthly or periodic statements from each delivery platform (e.g., DoorDash, Uber Eats). These reports will detail your gross sales, the fees and commissions deducted, and the net deposits.
• Bank statements showing the net deposits from each platform.

How Fyle Can Automate Expense Tracking for Delivery Platform Fees

Fyle helps you reconcile your gross sales with the associated platform fees, providing a clear and accurate picture of your delivery channel profitability.

• Centralize Platform Reports: Forward your monthly reports from DoorDash, Uber Eats, and others directly to Fyle for a complete digital record.
• Reconcile Gross vs. Net: Easily match the gross sales from your platform reports with the net deposits recorded in your bank account.
• Create a Clear Audit Trail: Fyle maintains a time-stamped, unalterable record of all your platform statements and related financial data.
• Automate Your Accounting: Fyle’s integrations with QuickBooks, Xero, and NetSuite make it easy for your accountant to record gross sales and the corresponding fees accurately.