Year-End Tax Planning for Restaurant Owners

At a glance

• The main takeaway: Year-end tax planning is essential to help restaurant owners proactively manage their finances, secure the long-term success of their restaurants or franchises, and improve tax savings.
• Impact on your business: By implementing tax planning strategies and taking tax credits into consideration, restaurant owners can effectively manage their tax liabilities and improve their restaurant’s or franchise’s overall financial health.
• Next steps: Aprio’s Restaurant, Franchise & Hospitality advisors recommend that restaurant owners prioritize annual tax planning in the fourth quarter so they can prepare their financial statements and be ready for the new year.

Schedule a consultation to start year-end tax planning with Aprio

The full story:

Autumn is officially here, so planning for the new year may not be at the top of your to-do list – but it should be. If you put tax planning on the backburner, you could risk missing valuable tax credits and savings that could put your restaurant or franchise in a strong position for 2025.

In addition, many provisions in the Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025, which could greatly impact your tax and financial position. Planning should begin now not only for the end of this year, but for the coming years in light of potential tax changes.

Strategies to maximize tax savings before year-end

It is also important to remember that year-end tax planning involves more than just crossing items off your checklist. We recommend taking a proactive, methodical, and strategic approach to your business and collaborating with a CPA who is experienced in the restaurant industry. By following the right approach and enlisting the right professional team to guide the process, you can gain more clarity of your financial picture, better manage the long-term financial success of your business, and be positioned to improve tax savings for the coming year.

Cash-flow planning is one strategy restaurant owners can implement as a proactive business and tax planning tool. When restaurant owners proactively analyze and plan for their cash flow, they can better prepare for their business’s financial growth in the new year, including any tax liabilities that may come up.

A number of other strategies are available for restaurant and franchise owners, including depreciation tools and pass-through entity tax options.

• Bonus depreciation is a top strategy that restaurant owners can leverage to secure tax savings and help boost their business’s bottom line. Bonus depreciation enables certain business owners to write off a large percentage of an eligible asset’s cost in the first year it is purchased. Under normal depreciation rules, businesses may be required to spread out the cost of capital purchases over several years. For example, restaurant owners could have leveraged 80% bonus depreciation on certain assets they purchased and put into service in 2023. Bonus depreciation amounts are steadily ticking downward. For example, certain assets purchased and placed into service in 2024 are eligible for 60% bonus depreciation. The depreciation amount will reduce to 40% in 2025.

• Section 179 is also a method of depreciation that enables business owners to write off the full cost of the assets in the first year they are purchased and placed in service. There are some limitations, though. Section 179 is limited to $1.22 million in 2024 and the cap on total asset purchases is $3.05 million. The deduction begins to decrease on a dollar-for-dollar basis once the aggregate asset purchases surpass this threshold. The 179 deduction is also limited to the extent of the business owner’s taxable income. Any unused Section 179 deductions can carry forward to future tax years.

• Cost Segregation is another depreciation strategy used in tax-planning. Cost segregation accelerates the depreciation timeline for certain property assets, enabling owners to achieve greater tax savings. Cost segregation studies can potentially uncover opportunities for retroactive tax deductions, allowing for past years’ benefits to be claimed. This can result in immediate cash flow increases, which is particularly beneficial for restaurants looking to expand, renovate, or simply boost their operating capital.

• Pass-through entity tax. In the restaurant industry, the state pass-through entity (PTE) tax is a strategy that enables pass-through entities (partnerships, LLCs, and S corporations) to pay the state income tax at the entity level. Each state is different, but with the PTE taxes in place, restaurant owners (or any business owner) who are subject to these taxes can potentially receive an offsetting income tax credit. Additionally, restaurant owners can benefit from the full federal state and local taxes (SALT) for PTE taxes paid.

Applicable year-end tax credits for restaurants

Certain tax credits are available to help restaurant and franchise owners, as well. Here are two credits that restaurant owners can leverage:

• The Work Opportunity Tax Credit (WOTC) is a federal tax credit can be implemented by employers hiring individuals from certain targeted groups who have faced or currently face employment challenges. However, this is only available to individuals who start their work on or before Dec. 31, 2025.

• Tip Credits enable restaurant owners or employers to pay certain employees less than the federal minimum wage. Eligible employees are those who receive tips regularly and whose tips are expected to make up the difference in employees’ salaries. For instance, the FICA Tip Credit pays employment taxes based on tip income. Restaurant owners can potentially save a large amount of money each year per employee if they implement this tip credit. This is calculated as 7.65% of any tips claimed over $5.15 per hour.

Lastly, restaurant owners can leverage Section 199A, or the Qualified Business Income (QBI) Deduction, which enables owners to deduct up to 20% of their QBI. According to the IRS, eligible taxpayers can claim the deduction for tax years beginning after Dec. 31, 2017, and ending on or before Dec. 31, 2025.

The bottom line

By implementing these strategies and taking tax credits into consideration, restaurant owners can effectively manage their tax liabilities and take steps to improve their restaurant’s or franchise’s overall financial health heading into the new year. Speaking with a professional tax advisor or CPA who can review your financial statements, determine which financial strategy best fits your situation, and position your restaurant for long-term success is a good course of action.

Restaurateurs or franchisees can reach out to Aprio’s Restaurant, Franchise & Hospitality team for proactive advice on their year-end tax planning, readiness on any tax deadline, and compliance with state-specific tax laws.

Related Resources/Assets/Aprio.com articles/pages

Restaurant, Franchise & Hospitality Services Page

Making the Most of Tax Deductions with Declining Bonus Depreciation

How Cost Segregation Can Improve Restaurant Owners’ Tax Strategies

Qualified Business Income Deduction