Navigating Tax & Regulatory Changes: Restaurant Industry Leaders’ Insight On Government Affairs

May 13, 2025

Key Tax Provisions Impacting Restaurant Owners

The U.S. House of Representatives Ways and Means Committee unveiled a substantial $4 trillion-plus tax package, aiming to extend the Tax Cuts and Jobs Act (TCJA) provisions and address budget resolutions from April 2025. The package seeks at least $1.5 trillion in savings across 11 House committees, potentially increasing tax cuts to $4.5 trillion if spending cuts reach $2 trillion. Released on May 9, 2025, several key provisions will impact restaurant owners. House Speaker Mike Johnson hopes for passage by Memorial Day, advancing to the Senate with a goal for presidential approval by July 4, 2025. Read on for an overview of a couple of key tax provisions that are impacting restaurant owners.

Qualified Business Income (QBI) Deduction

The TCJA introduced a 20% deduction on qualified business income for pass-through entities like partnerships and S corporations under Section 199A. Restaurant owners with taxable income below $394,600 (married, filing jointly) or $197,300 (single filers) in 2025 (adjusted annually) can fully claim this deduction. For those above these thresholds, limitations based on wages or assets apply. This provision, which enhances cash flow by effectively reducing tax rates, is set to expire on Dec. 31, 2025, making it a critical focus for tax planning.

Expiration: Dec. 31, 2025.

Proposed Legislation: Currently proposed, the Section 199A deduction would be made permanent and increased to 23%.

Bonus Depreciation

The TCJA expanded bonus depreciation to 100% for qualifying property (e.g., kitchen equipment, Qualified Improvement Property – which includes qualified leasehold improvements) placed in service from Sept. 27, 2017, to Dec. 31, 2022. The deduction phases down to 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. This provision encourages capital investments by reducing taxable income.

Expiration: Phased out after Dec. 31, 2026.

Proposed Legislation: Currently proposed, 100% bonus depreciation would be available for capital expenses from 2025 through 2029.

Limitation On Business Interest Deduction (Section 163(j))

The TCJA caps net business interest deductions at 30% of Adjusted Taxable Income, impacting debt-heavy restaurant owners. Adjusted Taxable Income is generally defined as Earnings Before Interest and Taxes (EBIT). Small businesses with average annual gross receipts of $31 million or less in 2025 (adjusted for inflation) are exempt. Those restaurant owners exceeding this threshold face challenges deducting interest expenses, particularly in the current high-interest–rate environment. This provision is permanent, though small business exemptions persist.

Expiration: Permanent, with ongoing small business exemptions.

Proposed Legislation: Currently proposed, the definition of Adjusted Taxable Income would be defined as Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). The interest expense limitation would still be limited to 30% of Adjusted Taxable Income; however, at a higher threshold amount based on the newly proposed Adjusted Taxable Income definition would be beneficial to restaurant owners. This provision would be in place from 2025 through 2029.

Other Provisions To Note

In addition to the revised provisions mentioned above, this bill would also introduce a handful of new concepts important to the restaurant industry.

No Tax on Tips

No Tax on Tips exempts tipped workers from the federal income tax as long as they are not considered “highly compensated employees.” The benefit begins in 2025 and terminates at the end of 2028. Currently, there is no cap on tax-free tip treatment (the Cruz-Buchanan legislation set a limit at $25K/year). The FICA Tip Credit is preserved for restaurants and extended to the beauty and salon industry to support tip reporting.

No Tax on Overtime

No tax on overtime starts in 2025 and terminates at the end of 2028. As proposed, overtime pay eligible for tax-free treatment is the increased wage amount above the standard hourly rate.

A handful of common federal tax credits generally taken by restaurant operators were not addressed in this bill. Should these provisions expire, it would be detrimental to the restaurant industry.

Work Opportunity Tax Credit (WOTC)

This program provides a federal tax credit to hire and train individuals with barriers to employment, is not included in the broader reconciliation deal, and will need bipartisan action in late 2025. If no action is taken, WOTC will expire effective Dec. 31, 2025.

Empowerment Zone Credit (EZ)

This is a credit paid to employees who live and work in certain low-income communities. Like WOTC, this is set to expire on Dec. 31, 2025. The proposed legislation did not address EZ and will need bipartisan action by late 2025 to extend the credit.

Revenue-raising provisions within the reconciliation package include a new tax on university and foundation endowments, remittances to foreign countries, rolling back tax credits for electric vehicles, and prohibiting new payments of the employee retention tax credit (ERTC) for claims filed after Jan. 31, 2024, among other provisions.

Looking Ahead: Strategic Planning For 2025 & Beyond

As the restaurant industry navigates these potential changes, owners must stay informed and agile. The anticipated policy shifts under the new administration further emphasize the urgency of strategic tax and operational planning. By being informed and proactive, owners can position their businesses for success in an increasingly complex environment. As we move into the latter half of 2025, staying ahead of these changes will be key to sustaining growth and profitability.

GBQ’s Restaurant Services Team is also here to help you ensure profitability, manage costs, and drive growth. Contact me directly, or click here to request to speak with a member of our team.

By Kaz Unalan, CPA, CEPA, Director, Tax & Business Advisory