Permanent deductions and payroll exemptions mean more cash flow for growth

What if your servers could take home more pay, your tax bill dropped by tens of thousands and you could finally upgrade that kitchen equipment — all without spending an extra dollar?

That’s exactly what the One Big Beautiful Bill (OBBB) can deliver. The new law locks in permanent tax breaks designed to put more money back into your restaurant. With labor costs climbing, ingredients eating into margins and utilities showing no sign of slowing down, these changes can be a lifeline for restaurant owners who run on razor-thin margins.

Here’s how OBBB can directly impact your bottom line.

  1. No Federal Income Tax on the First $25,000 of Tips and $12,500 of Overtime

For restaurants, tips and overtime are the backbone of your payroll. Under OBBB, the first $25,000 in eligible tips and first $12,500 in overtime pay per employee is now exempt from federal income tax.

Why This Matters for Your Restaurant

  • Employees keep more of their pay — without you raising wages.
  • Retention and recruiting advantage — stand out in a tough labor market.
  • Payroll processes will shift — the IRS will release updated forms in late 2025, so coordinate with your payroll provider early.

Example: A server earning $18,000 in tips and $7,000 in overtime will take home more pay and you don’t increase payroll costs. That means happier staff, lower turnover and less pressure on you to constantly raise wages just to stay competitive.

*Exemption applies only up to certain income thresholds; higher-income employees may be limited in how much of their tips/overtime qualifies.

  1. The Qualified Business Income (QBI) Deduction Is Now Permanent

The 20% QBI deduction has been a tax-saver for restaurants, but it was set to expire in 2025. OBBB makes it permanent.

Why This Matters

  • Stability for long-term planning — you don’t have to worry about this deduction disappearing.
  • Offsets rising operating costs — from food inflation to higher insurance premiums.
  • Applies to most owners — whether you operate as an LLC, partnership, or S corp.

Example: If your restaurant nets $500,000 in qualified business income, you now permanently get a $100,000 deduction. That’s money you can use for expansion, paying down debt or simply keeping cash in reserve during slower months.

*Certain high-income taxpayers may face limitations based on income, type of business and W-2 wages.

  1. Permanent Bonus Depreciation for Restaurant Equipment and Renovations

Restaurants constantly need to reinvest in equipment and space to stay competitive. Under OBBB, bonus depreciation is now permanent — meaning you can deduct 100% of eligible purchases the same year you make them.

Eligible Investments Include:

  • Kitchen equipment (ovens, fryers, walk-in coolers)
  • POS systems and technology upgrades
  • Furniture and fixtures
  • Certain building improvements and remodels

Why This Matters

  • Immediate deductions — you get tax relief in the same year you spend.
  • Better cash flow — plan upgrades around your financial year to maximize benefits.

Example: Spend $200,000 on a kitchen remodel in 2025, and you can deduct the entire amount that year. That could mean tens of thousands in tax savings — cash you can reinvest into your restaurant’s growth.

Putting It All Together: Real-World Savings

Let’s look at a mid-size restaurant in 2025:

  • 20 employees, each earning $10,000 in tips and $5,000 in overtime
  • $500,000 in qualified business income
  • $200,000 in kitchen equipment purchases

Combined Benefit in 2025

  • $500,000 in tax-exempt tips/overtime for staff → stronger retention, no extra payroll cost
  • $100,000 QBI deduction → lowers taxable income
  • $200,000 immediate deduction for equipment → boosts cash flow

Altogether, that’s hundreds of thousands in tax benefits and that’s before factoring in the deductions you’re already taking.

Take Action Now

The opportunities from OBBB are powerful, but you need to plan ahead to take full advantage. Here’s what to do next:

  1. Review payroll processes — prepare for IRS updates to tip and overtime reporting.
  2. Confirm QBI eligibility — work with your tax advisor to maximize the deduction.
  3. Plan equipment purchases — time your upgrades and renovations strategically.
  4. Stay proactive — the restaurants that save the most are those that plan before tax season, not after.
Questions?

For restaurant owners, every dollar counts. Don’t leave money on the table. Talk with your CPA or an Adams Brown business advisor now so you’re ready to capture every dollar of savings in 2025 and beyond.