The recently enacted One Big Beautiful Bill Act (OBBBA) introduces several important tax law changes for service-based businesses, especially restaurants. While some updates present new challenges, others offer new opportunities, so it is important to be informed and knowledgeable about the changes, including these key highlights:
Tip Compliance Still Matters
The bill includes enhancements around the tax treatment of tips and overtime pay. This brings new tax-savings opportunities for your employees, but it also puts more responsibility on you as an employer to stay compliant. Specifically, there are new temporary deductions available for tips and the premium portion of overtime pay. These provisions go into effect for tax year 2025 and are set to run through tax year 2028. This means that employees in qualifying tipped occupations (see here) and those receiving overtime pay can deduct up to $25,000 in qualified tips and overtime from their 2025 taxable income, even if those tips were earned earlier in the year before the law was signed on July 4, 2025. For employers, consider this a time to ensure you are accurately tracking and reporting pay, including tips and overtime. The tip deduction is for both employees and self-employed individuals. Withholding rules will not change but given the new deductibility of certain types of pay for your employees, accurate reporting, tracking, and monitoring is essential to ensure compliance with the new rules. Be sure to educate your staff on the importance of reporting all tips – accurate reporting now directly benefits them through potential tax savings. Discuss these changes with your payroll provider and be sure you are aligned with the information needed to comply with these changes. Finally, don’t forget to take advantage of the FICA tip credit if you are eligible and be sure you are filing Form 8027 – Employer’s Annual Information Return of Tip Income and Allocated Tips, if you are required to do so.
For more information on these provisions, check out our recent article: OBBBA Deductions for Tips and Overtime: Key Details | The Bonadio Group
Meal Deduction Rules Are Changing—But Not for You
Beginning in 2026, most businesses will lose the ability to deduct employer-provided meals and snacks. However, restaurants are exempt from this change, thanks to an exception in the regulations to Section 274, allowing restaurants and caterers to deduct 100% of their cost of food and beverages purchased in connection with preparing and providing meals to paying customers. This exception includes meals consumed at the works site by employees. That means you can continue to deduct 100% of your food and beverage costs and do not need to separately track meals provided to employees at the worksite.
Reduced Limitation on Business Interest Deductions
Larger restaurants and franchise groups that do not meet the IRS definition of a “small business taxpayer” may have had their deduction for business interest expense limited by Section 163(j), which took effect in 2018 as part of the Tax Cuts and Jobs Act. OBBBA allows for depreciation, amortization and depletion to be added back as part of the calculation, which may allow for a greater deduction for interest expense for restaurant groups subject to this limitation.
Broader Tax Updates That Also Affect Restaurants
In addition to the industry-specific changes, OBBBA includes several updates that apply to most business owners:
- 100% Bonus Depreciation Returns: Restaurants can now deduct the full cost of qualified assets like kitchen equipment and furniture purchased after January 19, 2025.
- Higher Section 179 Expensing Limits: Great news for small businesses making capital investments.
- Excess Business Losses: Restaurants generating tax losses need to be mindful of the excess business loss rule which limits the amount of business losses that can offset other taxable income. OBBBA made these rules permanent, and in addition lowered the limitation to $250,000 ($500,000 for joint filers) for 2026.
- No Changes to PTET (Pass-Through Entity Tax): Business owners in states with PTET regimes can continue to benefit from current rules.
- Relaxed 1099 Reporting Requirements: Reporting thresholds for 1099-MISC and 1099-NEC are increasing from $600 to $2,000 beginning in 2026, which may reduce the amount of 1099’s your business is required to file for your vendors providing services.
- Tax Changes Impacting Individuals: Restaurant owners should be mindful of changes affecting individual income taxation and how that will affect their personal tax returns, including permanent extension of the existing tax rates, increased SALT deduction and other changes impacting itemized deductions.
With these changes now signed into law, restaurant owners should take steps to understand how the new rules apply to them and adjust their tax planning strategies accordingly. Some provisions may require new recordkeeping habits or a conversation with your advisor to ensure compliance and maximize deductions.
Stay Informed on the OBBBA
We’re continuing to share timely insights to help you navigate the One Big Beautiful Bill Act. Find all our updates on the OBBBA Resource Hub, and follow us on LinkedIn and via email to stay connected.
If you need further guidance or have any questions, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
