Food and labor are the two items that can quietly wreck your hotel’s margins before you notice. Business owners know that manually tracking business expenses is essential, but many don’t have the time to lose. So how else will you know if you’re spending too much?
Below is how I answer it, along with the numbers you should be watching throughout the year, not just when the end of the year is catching up. It’s time to start tracking your spending the smarter way.
What are Some Direct Hotel Costs?
The real costs behind delivering your product or service, before you set your prices, determine whether you realize a profit. Think lumber, food ingredients, paint products. It’s easy to visualize when manufacturing a product, but what does this look like for a hotel owner?
Direct costs are your business expenses that are essential to keeping your operations on track and providing your guests with a room, behind the scenes.
Hotel direct costs include the following items:
- Food and beverages
- Consumables (disposable cups, napkins, packaging)
- Wages and benefits
- Payroll taxes and PTO
Food and labor are the two expenses you have the most day-to-day control over. When you track these costs accurately, you’ll know whether the services you’re charging for when someone books a stay at your property are too high, too low, or just right.
But even with proper tracking, some expenses will cost you more than you think.
Which Business Expenses are Costing the Most?
Hotel owners should be keeping a close eye on food and labor costs. Do you feel like your expenses are only increasing this year?
Here are some reasons why these costs seem to be getting more expensive:
- The American Hotel & Lodging Association projects U.S. hotels will pay $131 billion in wages and benefits in 2026, up from $128 billion in 2025. The scary part is that the figure is growing faster than total operating revenue has grown over the same period.
- The 2017 TCJA sunset took effect in 2026, cutting the deduction for employer-provided meals after December 31, 2025. This pre-scheduled expiration may be hurting your budget more than you had expected.
On the bright side, Section 179 also got more generous this year. For 2026, the maximum deduction is $2,560,000, with the phase-out beginning at $4,090,000 in qualifying purchases. If you’re renovating rooms or upgrading equipment, this is worth planning around rather than discovering at tax time.
Labor and food costs aren’t the only numbers moving under hotel owners’ feet this year, though. The tax code shifted, too, and it lands directly inside your food and beverage operation.
What Happens When Your Business Spending Gets Off Track?
Do you know how many labor hours go into each occupied room, and compare that number month over month? A rising wage rate is largely outside your control, but how many hours you deploy against each room sold is not.
None of the increasing costs look alarming on their own, but there’s trouble on the horizon when nobody catches them.
Looking at industry benchmarks, these are healthy prime cost ranges:
- Labor: in the 55% to 65% range of revenue
- Food and Beverage: running 25% to 35% of sales on its own.
If you’re not in that healthy range, you might start seeing these issues on your property:
- Margin erosion
- Tightening cash flow
- Delayed capital plans
- Staffing cuts that hurt service
The pattern in all four of these is timing. Each one is manageable when caught within a few weeks, but expensive when caught within a few quarters. That’s the entire case for why weekly cost tracking is much more valuable than a monthly or year-end review.
Catching an overrun early starts with knowing what’s deductible in the first place, since misclassifying an expense can cost you just as much as an unnoticed overrun.
How to Write Off Business Expenses
An add-on to the conversation is that some expenses are deductible. But which ones?
The IRS test qualifies a business expense as deductible when it is both ordinary and necessary. This means it must be common in the hotel industry and appropriate for running your property.
The IRS now points business owners toward a set of narrower publications depending on the category of spending:
- General deductions: Publication 334, the Tax Guide for Small Business, is the starting point if your property files on Schedule C.
- Payroll and staff costs: Wages, tips, and benefits get reported through Form 941 for quarterly payroll and Form W-2 for annual wage statements.
- Interest: Interest on a mortgage or a business loan is generally deductible, but businesses averaging more than $31 million in annual gross receipts over the prior three years are subject to Section 163(j)’s interest expense limit. For non-exempt businesses, OBBBA reinstated the ability to add back depreciation and amortization when calculating the limit, which increased the amount of deductible interest. For hotel owners with multiple properties, the $31 million is an aggregation across multiple controlled entities.
- Taxes and insurance: Property taxes, payroll taxes, and business insurance premiums are covered under the general small business guide.
- Capital improvements: OBBBA permanently restored 100% bonus depreciation for qualifying property, instead of depreciating over 15 years.
- Travel Expenses: Publication 463 covers what’s deductible for travel, gifts, and vehicle use, including the mileage rate.
Read more about how to make sure you’re categorizing your business and personal expenses in the proper way.
Of everything on that list, capital improvements deserve the closest look because the expenses are the largest and the rules are the least intuitive. Make sure everything you’re investing in is recorded, qualified, and budgeted for. Doing this now can save you from a headache later.
What is the Best Way to Keep Track of Business Expenses?
Most hotel owners I work with didn’t get into the hospitality business to stare at their financials.
A few habits make the biggest difference:
- Review food and labor costs weekly. Waste and overstaffing compound quickly and are far cheaper to fix in week one than in week four.
- Track cost per occupied room, not just totals. Revenue swings with occupancy and season, so your costs need to be measured with the same discretion.
- Separate staff meal costs into their own account. Now that deductibility depends on how they’re structured, it’s important to categorize the costs correctly.
- Build a rolling projection. Wage pressure and food costs are both moving targets, and a projection you update quarterly catches what an annual budget misses.
This is the work our team does at MBE CPAs. When a renovation or new property is on the horizon, we sit down with owners early enough to structure their expenses for the deductions available today. Overall profitability at year-end matters to us. But the little financial moves taken throughout the year matter more in the long run. Hotel owners miss these while they’re focusing on the guest experience, which makes a partnership even more valuable.
If you’re not sure whether your spending is on track, that’s usually the first sign it’s worth a conversation. Reach out and we’ll walk through your numbers together.