Restaurant Owners: Tax Tips to Save Before 2025 Ends!

Introduction

Restaurant owners face a relentless challenge: navigating complex tax codes while juggling slim margins and rising costs. Inexperienced CPAs often miss industry-specific deductions, leading to overpaid taxes and lost profits. Are you confident you’re claiming every tax break available to your restaurant? At Kewal Krishan & Co, our expert tax advisors help restaurant owners save an average of $50,000 annually, potentially totaling $1 million over a decade. This blog unveils essential tax tips for restaurant owners in 2025, backed by Internal Revenue Code (IRC) provisions, with practical examples and steps to slash your tax bill before year-end. From food costs to employee benefits, these strategies are tailored to your unique business needs. Act now to maximize savings with insights linked to Our Tax Planning Services.

Top Tax Tips for Restaurant Owners in 2025

Under IRC § 162, business expenses must be ordinary and necessary, with strict substantiation for certain deductions under IRC § 274(d). Below are key tax-saving strategies for restaurant owners, reported on Schedule C (Form 1040) for sole proprietors, Form 1120 for corporations, or Form 1065 for partnerships, with depreciation on Form 4562.

1. Food and Beverage Costs

Costs for ingredients and supplies used in food preparation are deductible under IRC § 162. Track inventory usage to claim these expenses accurately.

2. Equipment Depreciation

New or used kitchen equipment (e.g., ovens, refrigerators) qualifies for 40% bonus depreciation under IRC § 168(k) or Section 179 expensing (up to $1.22 million, adjusted for inflation) if placed in service by December 31, 2025.

3. Employee Wages and Benefits

Wages, health insurance, and retirement contributions for staff are deductible under IRC § 162. The Work Opportunity Tax Credit (WOTC) under IRC § 51 may also apply for hiring certain employees, such as veterans.

4. Marketing and Advertising

Expenses for advertising, social media campaigns, and website maintenance are fully deductible under IRC § 162, boosting your brand while cutting taxes.

5. Rent and Utilities

Lease payments for restaurant space and utilities (e.g., electricity, water) are deductible under IRC § 162, provided they’re business-related.

For detailed guidance, see IRS Publication 535.

Detailed Example: Maximizing Restaurant Deductions

Consider Maria, who owns a sole proprietorship restaurant with $800,000 in 2025 gross income. Her expenses include:

• Food/Supplies: $250,000 for ingredients.
• Equipment: $60,000 for a new oven, claiming 40% bonus depreciation ($24,000) under IRC § 168(k), plus $5,143 standard depreciation (7-year property).
• Wages/Benefits: $200,000 for staff, plus $5,000 WOTC for hiring a qualifying employee.
• Marketing: $15,000 for social media and local ads.
• Rent/Utilities: $80,000 for lease and utilities.

Total deductions: $250,000 (food) + $24,000 (bonus depreciation) + $5,143 (standard depreciation) + $200,000 (wages) + $5,000 (WOTC) + $15,000 (marketing) + $80,000 (rent/utilities) = $579,143. After deductions, Maria’s taxable income drops to $220,857. With self-employment tax (15.3% on net earnings, half deductible under IRC § 164(f)), her tax liability at a 24% bracket is ~$52,800, versus $192,000 without deductions—a savings of over $139,200.

Alternative Scenario

If Maria elects Section 179 to expense the full $60,000 oven, her deductions rise to $600,000, reducing taxable income to $200,000 and taxes to ~$48,000, saving an additional $4,800.

Step-by-Step Guide for Taxpayer Compliance

To claim these deductions and comply with IRS rules, follow these steps:

1. Track Expenses: Use accounting software to log food costs, equipment purchases, wages, and other expenses per IRC § 6001.
2. Verify Eligibility: Ensure expenses are business-related and meet IRC § 162 criteria.
3. Calculate Depreciation: Use Form 4562 to compute bonus depreciation (IRC § 168(k)) or Section 179 expensing (IRC § 179).
4. Apply for WOTC: Submit Form 8850 to your state workforce agency within 28 days of hiring eligible employees, then claim the credit on Form 5884.
5. File Returns: Report deductions on Schedule C (sole proprietors), Form 1120 (corporations), or Form 1065 (partnerships) by April 15, 2026, or extend with Form 4868.
6. Retain Records: Keep receipts, invoices, and payroll records for at least three years per IRC § 6001.

Explore Our Business Tax Services for restaurant-specific strategies.

Common Pitfalls to Avoid

• Unsubstantiated Expenses: Food and marketing costs require receipts or invoices per IRC § 6001.
• Mixed-Use Equipment: Only the business-use portion of equipment is deductible under IRC § 162.
• Missing WOTC Deadlines: Form 8850 must be filed within 28 days of hiring to claim the credit (IRC § 51).
• Improper Depreciation: Miscalculating or failing to claim bonus depreciation or Section 179 limits savings.

Why Work with a Tax Expert?

Restaurant tax rules are complex, and generic preparers may overlook credits like WOTC or misapply depreciation, costing you thousands. Kewal Krishan & Co ensures every eligible deduction and credit is claimed, minimizing taxes while ensuring compliance. Our expertise is detailed in Our Tax Litigation Services.

Conclusion

These 2025 tax tips—food costs, depreciation, wages, marketing, and rent—under IRC provisions can significantly reduce your restaurant’s tax burden before year-end. With meticulous records and strategic planning, you can retain more profits for growth. Don’t let missed deductions eat into your bottom line—act now to optimize your tax strategy.

Call to Action

Schedule a consultation with Anshul Goyal, CPA EA FCA, a licensed U.S. CPA and Enrolled Agent, admitted to practice before the IRS, specializing in tax litigation and cross-border tax for U.S. businesses and Indians in the U.S. Contact us at Kewal Krishan & Co to maximize your restaurant’s tax savings.

About Our CPA

Anshul Goyal, CPA EA FCA, is a licensed U.S. CPA and Enrolled Agent, representing clients in IRS tax litigation and assisting with cross-border tax compliance for U.S. businesses and Indians in the U.S. His expertise ensures tailored strategies that maximize savings and ensure compliance.

Disclaimer

This blog provides general information for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently, and individual circumstances vary. Consult a qualified tax professional before making decisions. The author and firm disclaim liability for actions taken based on this content.

FAQs

1. What restaurant expenses are deductible in 2025?

Food, equipment depreciation, wages, marketing, and rent, if ordinary and necessary (IRC § 162).

2. What’s the 2025 bonus depreciation rate?

40% for qualifying equipment placed in service (IRC § 168(k)).

3. How do I claim the WOTC?

File Form 8850 within 28 days of hiring eligible employees, then claim on Form 5884 (IRC § 51).

4. Can I deduct my entire restaurant lease?

Yes, if used exclusively for business (IRC § 162).

5. What records must I keep?

Receipts, invoices, and payroll records for at least three years (IRC § 6001).