Restaurant Year-End Tax Strategies: 10 Must-Do Items | GBQ

10 Year-End To-Dos For Restaurants 

As year-end approaches, restaurant owners should review tax strategies that can reduce their 2025 liabilities and establish a stronger financial position going into 2026. The hospitality industry has unique opportunities and pitfalls, especially in areas like depreciation, employment credits, tip reporting, and state-level elections. Keep reading for a practical checklist of key actions to consider. 

Read Also:  The One Big Beautiful Bill Act: Key Provisions Impacting The Restaurant Industry 

1. Review Your 2025 Capital Expenditure (CapEx) Plans

Year-end is the ideal time to evaluate kitchen equipment, POS upgrades, furniture, HVAC systems, and leasehold improvements. The  One Big Beautiful Bill Act  (OBBBA) retroactively increased bonus depreciation to 100% for qualified property acquired and placed in service after Jan. 19, 2025. It also increased the Section 179 expensing threshold to $2,500,000 on the first $4,000,000 of eligible property, with a dollar-for-dollar phase-out for eligible property spent over $4,000,000. 

Key considerations: 

• Timing matters: Deductions generally apply when assets are placed in service, not purchased. Pay close attention to timing rules for self-constructed property.  
• Compare bonus depreciation, Section 179 expenses, and regular MACRS depreciation to determine the most tax-efficient route. 
• Don’t overlook state adjustments: Many states do not conform to federal bonus depreciation or Section 179 limits. This can materially affect state taxable income. 

2. Evaluate Eligibility For R&D Credits

Many restaurants overlook this. The OBBBA now allows qualified amounts paid or incurred after Dec. 31, 2024, to be currently deductible along with generating tax credits. Qualifying activities can include: 

• Developing new menu items or improving recipes. 
• Designing new food-prep processes. 
• Implementing new production equipment or technologies. 
• Improving automation or efficiency in kitchen operations.  

Even small changes to processes may qualify. An R&D study can uncover opportunities to reduce current taxes. 

Read Also:  Impact Of R&D Changes Within The One Big Beautiful Bill Act (OBBBA) On The Restaurant Industry 

3. Review Planning Under Section 163(j) Business Interest Expense Limitation

The interest-expense limitation can significantly affect leveraged restaurants, particularly those with expansion of financing or equipment loans. The OBBBA has provided relief to those restaurants negatively impacted by the previous rules. For 2025 forward, the new relaxed rules will allow restaurant owners greater interest expense deductions. Owners should note that if their gross receipts are less than $30M for tax year 2025, they will not be subject to this limitation. 

You should review: 

• Current-year limitation impacts. 
• Carry forward amounts and opportunities to free them up with projected income. 
• Whether reviewing entity structure or debt allocation could improve future deductibility. 
• How CapEx decisions influence potential interest limitations. 

4. Don’t Overlook The Pass-Through Entity Tax (PTET) Deduction

Many states allow partnerships and S corporations to elect to pay state income tax at the entity level, often producing a federal deduction that avoids the individual SALT cap limit. 

Important reminders: 

• Some states require timely annual elections (often early in the year or quarterly). 
• Check deadlines for estimated PTET payments. 
• Review how PTET interacts with owner distributions and guaranteed payments. 

5. Review Eligibility For Employment Tax Credits

Restaurant owners often qualify for employment-based incentives but fail to claim them. Be sure to review: 

• Work Opportunity Tax Credit (WOTC):  For hiring individuals from targeted groups. 
• Empowerment Zone Employment Credits:  If your location or workers qualify. 
• FICA Tip Credit:  Available to restaurants where employees receive tips. 
• State-Specific Hiring Credits:  Year-end is the time to ensure certifications, documentation, and forms are properly submitted. 

6. Tip Reporting & Employee Compensation Planning

Tips remain a major IRS compliance area. Restaurants should review: 

• Tip-reporting procedures and POS reporting accuracy. 
• Service charges vs. tips (and payroll implications). 
• Tip-pooling or tip-sharing arrangements. 
• Whether year-end bonuses or wage adjustments change payroll-tax projections. 

Accurate reporting strengthens the FICA Tip Credit and reduces audit risk. 

7. Inventory, COGS, & Accounting-Method Review

As the year wraps up, it’s important for restaurants to consider: 

• Writing down spoilage, obsolete inventory, and waste. 
• Evaluating the timing of food/beverage purchases. 
• Reviewing whether cash vs. accrual accounting is more advantageous. 
• Completing a year-end COGS analysis to ensure margins and deductions are accurate. 

8. Review Compliance With Sales Tax, Meals Tax, & Marketplace Facilitator Rules

Restaurants frequently face complex state and local sales tax obligations, especially if they offer delivery, catering, or sell through third-party platforms. Key year-end considerations to keep top of mind include: 

• Verify proper sales/meals tax collection rates for dine-in, takeout, delivery, alcoholic beverages, and catering (rates often vary). 
• Reconcile sales-tax liabilities to POS reports to ensure no under- or over-collection. 
• Review whether marketplace facilitator laws (e.g., DoorDash, Uber Eats, Grubhub) shift responsibility for tax collection, and whether you are still compliant with direct sales. Also, review the potential for duplicate sales tax payments if you do business in certain states where those third-party providers have the sales tax collection responsibility.  
• Confirm filing frequency (monthly/quarterly/annually) and check for past-due or amended returns. 

Evaluate nexus exposure if you operate multiple locations or sell across jurisdictions. 

This area is a frequent audit trigger, and a year-end review can prevent costly penalties and payment issues.  

9. Review Fourth Quarter Estimated Tax Payments

If taxable income is trending lower than expected, you may be able to scale back your Q4 estimated payment to improve cash flow. Conversely, if profit is higher, adjusting the final payment can reduce or eliminate underpayment penalties. 

10. Succession, Gifting, & Long-Term Planning

Family-owned restaurants should review: 

• Buy-sell agreements 
• Gift planning 
• Real-estate ownership (If the business owns or leases from a related party.) 
• Whether trusts or family partnerships could reduce long-term tax exposure. 

Year-end is one of the most important tax-planning windows for restaurant owners. It is extremely valuable to review the items covered above to reduce risk and maximize opportunities. Proactive planning before Dec. 31 remains the most effective tool to avoid surprises and capture every available benefit.  Contact your GBQ Tax Advisor  for more information.  

By  Kaz Unalan, CPA, CEPA, Partner, Tax & Advisory 

Looking for additional guidance? Check out these resources:

Your Restaurant’s Big Purchases: And How GAAP Says To Depreciate Them 

Unwrapping Rules For Gift Card Accounting Under GAAP 

New OBBBA Provisions Set To Reshape Payroll Tax Reporting