The One Big Beautiful Bill Act (OBBBA) has been signed into law by the President. What does that mean for your restaurant, bar, or nightclub?
Here are some of the key provisions in the final bill that will significantly impact your restaurant or bar’s finances:
- 100% bonus depreciation for property acquired and placed in service after January 19, 2025, becomes permanent. Bonus depreciation was being phased out at 40% for 2025, 20% for 2026, and 0% for 2027. Bonus depreciation is a temporary tax benefit that allows businesses to accelerate depreciation tax deductions on their fixed asset purchases in the year the asset is placed in service, rather than depreciating the asset over its useful life slowly.
- The qualified business income deduction (QBID) becomes permanent, with the percentage remaining at 20%. The QBID is a small business incentive that allows pass-through entity partners or shareholders to write off 20% of their business income, subject to certain limitations. The QBID is set to expire this year.
- The Section 179 deduction limit increases from $1.25m to $2.5m. The Section 179 deduction allows businesses to deduct 100% of the purchase price of their qualifying fixed assets in the year placed in service up to a certain dollar limit. Unlike Bonus Depreciation, Section 179 is a permanent tax incentive dating back to 1958. It has an expensing limitation and a threshold at which the limitation begins to phase out.
- Excess business loss limitations become permanent. The losses you can claim from your restaurant or bar against your other sources of taxable income, such as wages or investment income, were temporarily limited to $313,000 for single filers and $626,000 for joint returns. This limitation is now permanent. Any disallowed loss is carried over as an NOL and claimed against future taxable income subject to an 80% of taxable income limitation.
- The SALT deduction limit increases from $10k to $40k from 2025 to 2029. The SALT deduction limitation limits the amount of state and local taxes that you can deduct on your personal tax returns (if you itemize) to $10k. This affects your restaurant or bar because you’re likely paying tax at the business level (also known as the PTET tax), so that you’re not subject to these limitations at the personal level. The write-off is indexed for inflation and will be phase out for taxpayers with incomes exceeding $500,000 per year. After the five-year period, the limit would snap back to the current $10,000 limit imposed in the 2017 tax law.
- No income tax on tips from 2025 to 2028. Workers making under $160k/year ($320k for married filing jointly) will be able to claim a deduction for amounts of up to $25k/year in tips. Social security and medicare taxes would still apply. Service charges are not considered tips. Tips must be free from compulsion and discretionary. Learn how to identify a tip from a service charge here. It appears that the IRS federal income tax withholding tables will not be updated to reflect the $25k exclusion; thus, payroll withholdings will be unaffected, but refunds will be larger.
- No tax on overtime pay from 2025 to 2028. Employees making under $160k/year ($320k for married filing jointly) will be able to exclude their overtime pay (via a new box on the W-2) up to $12,500/year per individual from their taxable income. The deduction only applies to overtime pay above the regular rate. For example, a worker who earns $20 per hour would earn $30 for overtime: $20 plus $10 per hour for the overtime portion. The tax benefit would only apply to the $10 per hour portion. Social security and medicare taxes would still apply. It appears that the IRS federal income tax withholding tables will not be updated to reflect the $25k exclusion; thus, payroll withholdings will be unaffected, but refunds will be larger.
- Form 1099 reporting threshold increases to $2,000. The OBBBA increases the information-reporting threshold for certain services from $600 to $2,000, which will be indexed annually for inflation in calendar years after 2026.
- Retroactive deadline of January 31, 2024, for certain Employee Retention Tax Credit (ERTC) filings. The original deadline for claiming the ERTC was April 15, 2025, and April 15, 2025 for 2020 and 2021 payroll, respectively. The OBBBA retroactively bars the IRS from issuing refunds for Employee Retention Tax Credit (ERTC) claims for Q3 and Q4 2021 filed after Jan. 31, 2024.
We recommend working with an accountant who understands the tax nuances and incentives related to the restaurant industry. Please feel free to contact us to learn more about how the One Big Beautiful Bill impacts restaurants and bars!
