The restaurant industry is no stranger to volatility. From razor-thin margins to labor shortages and inflationary pressures, operators must constantly adapt to survive. The One Big Beautiful Bill Act (OBBBA), passed in July 2025, offers a rare opportunity: a comprehensive tax overhaul that directly addresses many of the financial pain points restaurant owners face. But to fully capitalize on these benefits, operators must understand not just the provisions themselves, but how they intersect with operational realities like prime cost pressure, disconnected books, and inventory mismanagement.

This article explores some of the key tax benefits from OBBBA, weaving in real-world restaurant finance challenges and offering actionable insights for implementation.

Tip Income Deduction

Employees can deduct up to $25,000 in tip income from their taxable wages. This above-the-line deduction applies to qualified tip income in traditionally tipped roles and is allowed for both employees receiving a Form W-2 and independent contractors who receive Form 1099. There are phase out provisions for taxpayers whose modified adjusted gross income exceeds $150,000 ($300,000 for joint filers) however, for restaurants struggling with staff turnover, this provision enhances take-home pay without increasing wages, creates a recruiting advantage for traditional tipping models, and helps with retention.  Be prepared to clearly understand some added reporting requirements and consider preparing a FAQ to clarify what qualifies and how it affects employees W-2’s.

Overtime Pay Deduction

Workers can deduct the premium portion of overtime pay—up to $12,500 individually or $25,000 jointly. Only the 1.5x portion of OT is deductible, not base wages. Similar to the Tip Income Deduction, the overtime pay deduction begins to phase out for taxpayers whose modified adjusted gross income exceeds $150,000 ($300,000 for joint filers). The deduction could help encourage longer shifts and help restaurants manage labor gaps without overburdening payroll budgets.  Similar to Tip Reporting, be prepared for some added complexity with payroll reporting and systems, employee reclassification for exempt/non-exempt classifications, and potential scheduling implications and cost modeling.

100% Bonus Depreciation Restored

The OBBBA permanently extends the Sec. 168 additional first year (bonus) depreciation deduction.  The allowance is increased to 100% for qualified property like ovens, fryers, POS systems and other qualified kitchen and restaurant equipment, furniture, and qualifying interior renovations acquired and placed in service on or after January 19, 2025.  This provision applies to both new and used assets. The enhanced deduction will accelerate the ROI on capital investments, reduce taxable income in the year of purchase, and enables reinvestment in remodels and kitchen efficiency and modernization—which is key for addressing ‘Inventory Mirage’ and reducing waste.  Operators should revisit CapEx plans for 2025-2026, consider cost segregation studies to maximize eligibility, and align depreciation strategies with overall tax planning.

Immediate Expensing of R&D

The bill allows taxpayers to immediately deduct domestic research or experimental expenditure costs paid or incurred in tax years beginning after December 31, 2024.  Small business taxpayers with average annual gross receipts of $31 million or less will generally be permitted to apply this change retroactively to tax years beginning after December 31, 2021.  In addition, taxpayers that made domestic research or experimental expenditures after December 31, 2021, and before January 1, 2025, will be permitted to elect to accelerate the remaining deductions for those expenditures over a one-or two-year period.  This provision reverses prior amortization rules under IRC §174 and supports innovation in menu development, sustainability practices, and tech adoption—especially for operators reengineering low-margin menu items.

Limitation on Business Interest Deduction

The bill reinstates the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) limitation under Sec. 163(j) for tax years beginning after December 31, 2024.  Under this provision, the deduction for qualifying business interest would be computed without regard to the deduction related to depreciation, amortization, or depletion which makes debt-financed growth more feasible, especially for operators investing in new locations or renovations.

Section 179 Expensing and Increased Phase Out Cap

Section 179 allows businesses to deduct the cost of most tangible equipment such as kitchen and furniture and certain building improvements instead of depreciating them over time.  The OBBBA increases the expensing limit to $2.5 million.  The limit is reduced by the amount by which the cost of qualifying property exceeds $4 million.  This provision complements bonus depreciation and is useful for smaller-scale purchases but requires careful tracking to avoid the phase-out.

QBI Deduction

The OBBBA permanently extends the Qualified Business Income (QBI) deduction and keeps the deduction rate at 20%.  The bill expands the Sec. 199A deduction limit phase-in range of wage and investment limitations for pass-through entities like S-Corporations and partnerships and introduces a minimum deduction for businesses in which the taxpayer materially participates.  The extension of the QBI deduction is a welcome deduction that assists with reducing the effective tax rate for owners, however, requires planning to stay under income thresholds.

Temporary SALT Deduction Cap Increase

The bill temporarily raises the cap on the federal deduction for state and local tax deductions to $40,000 (from the current $10,000) and adjusts for inflation by 1% annually for the 2026 through 2029 tax years.  In 2030, it will revert to $10,000. Applies to individuals and pass-through owners. The amount of the deduction available to a taxpayer phases down for taxpayers with modified adjusted gross income (MAGI) over $500,000 (in 2025) and will be adjusted for inflation through 2029.  The cap increase benefits restaurant owners in high-tax states and improves after-tax cash flow.

Conclusion

The OBBB Act is more than a tax bill—it’s a strategic opportunity for restaurant operators to realign their financial practices with long-term sustainability. But the benefits won’t materialize automatically. They require proactive planning, accurate accounting, and a willingness to confront operational blind spots. By integrating these tax provisions into a broader financial strategy, restaurant owners can not only reduce their tax burden but also build a more resilient, profitable business.

For more information or to learn more how the OBBBA will impact your restaurant operations, please contact Tim Reynolds at 828.322.2070 or tim@dhw.cpa.