The One Big Beautiful Bill Act (OBBBA, or “the Act”), signed into law in July 2025, introduces tax reforms that significantly impact the restaurant industry. Key provisions, such as expanded bonus depreciation and exclusions for tip income and overtime pay, affect how restaurants manage cash flow, structure compensation, and anticipate growth. As restaurateurs consider tax planning and make cash-flow projects or budgets for the coming year, it is important to understand these changes. In the following article, Forvis Mazars considers eight tax reform areas that directly impact the restaurant sector.
1. Permanent 100% Bonus Depreciation
Under the OBBBA, 100% bonus depreciation for qualified property placed in service after January 19, 2025 is now permanent. This allows restaurants to deduct the entire cost of qualifying assets in the year they are placed in service, rather than depreciating them over time. The increased bonus depreciation leads to immediate tax relief on capital expenditures, making decisions to upgrade, remodel, or open new locations less costly.
2. Expanded Section 179 Deduction
In addition to 100% bonus depreciation, the OBBBA also doubled the §179 deduction limit on direct expensing from $1.25 million to $2.5 million. Certain assets that are not eligible for 100% bonus depreciation are eligible for direct expensing under §179, which makes this a powerful tool for smaller restaurants. Unlike bonus depreciation, §179 has a phase-out threshold that limits its use for larger operators.
3. Permanent 20% Qualified Business Income Deduction (QBID)
Originally set to expire after 2025, the QBID, which allows pass-through entities to deduct 20% of qualified business income, is now a permanent feature. This is particularly beneficial for restaurant owners operating as limited liability companies (LLCs), S corporations, or partnerships, as it helps reduce their personal effective tax rate.
4. Excess Business Loss Limitations
In addition, losses from restaurant operations may be limited under the Excess Business Loss rule, which also is now made permanent under the OBBBA. Originally enacted as a temporary measure expiring in 2028 under the Tax Cuts and Jobs Act of 2017 (TCJA), this rule restricts the amount of business losses that noncorporate taxpayers, including restaurant owners, can deduct against other sources of income.
5. State & Local Tax (SALT) Deduction Expansion
The SALT deduction cap on federal income tax returns increases from $10,000 to $40,000 between 2025 and 2029. The increased cap is subject to an AGI limitation, which could reduce the cap back down to $10,000. The SALT deduction cap and AGI phaseouts are set to increase by 1% each year from 2026 through 2029. This change benefits restaurant owners operating as flow-through entities in high-tax states. Those utilizing pass-through entity tax (PTET) strategies to mitigate personal SALT limitations should consider this change in their tax planning. While this is a temporary increase, there are still benefits to explore.
To learn more, see our FORsight™: The Uncertain Future of SALT Deductions & State PTET Elections | Forvis Mazars
6. Tip Income & Overtime Pay Exclusions
Perhaps the most hospitality-specific provision is a deduction of up to $25,000 on tips from 2025 to 2028 (with phaseouts for taxpayers with income over $150,000 and $300,000 for joint filers). Many servers, bartenders, delivery staff, and other tipped employees are eligible. Similarly, overtime pay up to $12,500 per year (or $25,000 for joint filers) may be excluded from taxable income for these qualifying employees. These changes do not directly impact the business as these are individual return deductions; however, the reduced tax burden for tipped workers and those working overtime may improve employee retention. As a result, employers should consider revisiting compensation structures and payroll systems to leverage these benefits.
7. Form 1099 Reporting Threshold Raised
Restaurants often engage with a variety of local nonemployee service providers including cleaning services, live entertainment providers, event staff, and other various contractors and technicians. Under the OBBBA, the Form 1099 threshold increases from $600 to $2,000, reducing administrative burdens for restaurants that rely on these contractors or third-party service providers. Of note, this change applies to payments made after December 31, 2025, i.e., beginning in tax year 2026. The $2,000 threshold is also adjusted for inflation starting after 2026.
8. More Favorable Section 163(j) Interest Deduction Rules
The OBBBA modifies §163(j) limitation on business interest expense, which is especially relevant for restaurants with significant debt financing. Rather than interest expense being limited to EBIT (with adjustments) times 30%, it is now increased to earnings before interest, taxes, depreciation, and amortization (EBITDA) times 30%. Allowing depreciation and amortization to be added back before applying the 30% limitation increases the amount of deductible interest, which is critical for restaurants with expansion loans, equipment financing, or real estate debt. It also benefits multiunit operators and private equity-backed restaurant groups that rely on leverage to scale operations.
Final Thoughts
The OBBBA represents a shift in tax policy that is favorable to restaurants and its staff. However, the complexity of the Act demands careful planning. Restaurant owners should consider consulting with tax professionals to increase deductions, help ensure compliance, and strategize for the future.
Want to learn more about the OBBBA? Visit our Washington National Tax Office (WNTO) page here or contact a Forvis Mazars professional.