Three Key Takeaways
- Year-end action determines your 2025 tax outcome, not what happens during tax season. Strategic equipment purchases, payroll adjustments, and compliance reviews completed before December 31 can reduce your tax liability by tens of thousands of dollars. Missing these deadlines means missing savings opportunities that can’t be recovered later.
- The 2025 tax law creates immediate write-off opportunities for equipment investments. Qualifying restaurant equipment purchased and placed in service after January 19, 2025 can be fully expensed this year under restored 100% bonus depreciation. Combined with increased Section 179 limits, restaurant owners have unprecedented flexibility to reduce taxable income through strategic capital investments.
- Proper tip tracking and compliance review can unlock thousands in overlooked tax credits. The FICA Tip Credit remains one of the most valuable yet frequently missed tax benefits for restaurants. Ensuring your POS and payroll systems correctly track tips can generate substantial dollar-for-dollar tax reductions while improving compliance.
December in the restaurant industry means holiday rushes, year-end staffing challenges, and constant pressure to hit revenue targets. Tax planning often falls to the bottom of the priority list; something to worry about “during tax season.”
That’s exactly the wrong approach.
What you do between now and December 31 determines how much you keep and how much you hand over to the IRS in April. Once the calendar flips to January 1, 2026, your options for reducing your 2025 tax liability essentially disappear.
The 2025 tax environment offers restaurant owners particularly valuable opportunities around equipment investments and payroll planning. But capturing these benefits requires understanding what’s changed, what action you need to take, and most importantly, what needs to happen before December 31.
Strategic Equipment Purchases: Timing Is Everything
The restoration of 100% bonus depreciation under the One Big Beautiful Bill Act fundamentally changes the economics of equipment investments. For qualifying property acquired and placed in service after January 19, 2025, you can immediately deduct the full purchase price rather than depreciating it over five to seven years.
A $100,000 kitchen equipment package that would traditionally provide roughly $14,000-$20,000 in first-year deductions can now be fully expensed in 2025, potentially reducing your tax bill by $20,000-$30,000 or more.
The Critical “Placed in Service” Requirement
To claim the deduction on your 2025 return, equipment must be delivered, installed, and ready for use before December 31—not simply ordered or paid for. If you order a walk-in cooler in mid-December but it’s installed on January 3, the deduction shifts entirely to 2026.
Restaurant operators considering Q1 2026 equipment purchases should evaluate whether accelerating those investments into December makes sense. Equipment that ships and installs quickly, like POS tablets, small wares, bar equipment, and furniture, present straightforward opportunities in the last few weeks of the year.
Section 179 Flexibility
The same law that restored 100% bonus depreciation also increased Section 179 expensing limits to $2.5 million (with phase-out beginning at $4 million). This creates significant flexibility in structuring equipment deductions.
Section 179 cannot create net operating losses; it’s limited to taxable income. Bonus depreciation has no income limitation and can create losses that offset income in other years, providing advantages for restaurant groups with varying profitability across locations.
Key Takeaway: The window for 2025 equipment deductions closes December 31. Strategic operators evaluate planned Q1 2026 purchases to determine which can be reasonably accelerated, focusing on assets with short lead times that can be placed in service before year-end.
Maximize Your FICA Tip Credit Before Year-End
The FICA Tip Credit allows you to recover the employer portion of Social Security and Medicare taxes (7.65%) paid on tips exceeding a $5.15 per hour wage threshold. For a restaurant with $500,000 in annual tip income, the credit can easily exceed $30,000-$40,000 annually.
Why December Matters Most
December typically generates the highest tip volume of any month. Holiday parties, increased dining frequency, and larger check averages translate into substantial tip income, making December the most important month for tip reporting accuracy.
If your systems aren’t properly configured, the impact on your credit calculation is most severe during this high-volume period. A restaurant generating $50,000 in December tip income could lose $3,000-$4,000 in potential credits from reporting errors during just this month.
Common Calculation Errors
Many operators calculate the FICA Tip Credit incorrectly by using today’s $7.25 federal minimum wage rather than the statutory $5.15 base. This error can reduce the credit by 30-40%.
The credit is calculated on tips above the $5.15 hourly threshold, regardless of what minimum wage you actually pay. For tipped employees earning $6.00 per hour base wages, nearly all reported tips qualify for the credit calculation.
Another frequent mistake involves service charges. Automatic gratuities (such as mandatory 20% charges for large parties) are not tips for tax purposes and don’t qualify for the FICA Tip Credit.
Learn More: Accounting for Tips: What Restaurant Owners Need to Know
Year-End System Review
Verify your systems are configured correctly:
- POS Mapping: Ensure your system correctly categorizes cash tips, credit card tips, and service charges separately
- Payroll Integration: Confirm tip data flows accurately from POS to payroll
- Tip Pooling Rules: Verify pooled tips are correctly allocated
- Documentation: Maintain records supporting your credit calculation
Key Takeaway: December’s elevated tip volume makes this month critical for proper tip tracking. Year-end system reviews completed before the holiday rush ensure maximum credit capture during your highest-volume period.
Review and Reclassify Repair Expenses
How expenditures are classified, either as immediately deductible repairs or as improvements that must be capitalized, directly impacts your tax liability. A $30,000 HVAC repair expensed immediately reduces current taxable income by $30,000. The same expenditure classified as an improvement provides perhaps $5,000-$7,000 in current year deductions.
What Qualifies as a Repair
Replacing individual components often qualifies as a repair: fryer parts, refrigeration compressors, HVAC motors, POS hardware replacements. Cosmetic work like painting, tile patching, or drywall repairs typically qualifies for immediate deduction. Safe harbor provisions allow immediate expensing of items below certain thresholds: often $2,500 to $5,000 per item.
Year-End Review Opportunities
Work with your restaurant CPA to review your 2025 expenditures for items that may have been incorrectly categorized:
- Equipment component replacements
- Minor facility updates grouped into larger “improvement” categories
- Small-dollar purchases qualifying for safe harbor treatment
- Routine maintenance that was miscategorized
A year-end review of 2025 expenditures can uncover thousands in overlooked deductions without requiring any new spending.
Optimize Year-End Payroll and Owner Compensation
For S-corporation owners and partners in restaurant LLCs, year-end presents opportunities to optimize how income flows to owners.
Owner Compensation Strategy
S-corporation owners face a balancing act: wages that are too low may trigger IRS scrutiny, while wages that are too high subject more income to payroll taxes. The optimal balance depends on your total income and whether you qualify for the QBI deduction.
December bonuses for owners or key employees create deductible expenses for the business in 2025. However, bonuses must be reasonable and properly documented.
Retirement Plan Contributions
Contributions to SEP IRAs, SIMPLE IRAs, or solo 401(k) plans can significantly reduce taxable income. Solo 401(k) contributions can reach $69,000 in 2025 for those under 50 (or $76,500 for those 50 and over).
While some plans allow contributions until the filing deadline, establishing new plans generally requires action before year-end.
Additional Year-End Opportunities
In addition to the above opportunities, there are several additional opportunities that might make sense for many restaurant owners.
Enhanced Charitable Deduction for Food Donations
Food donations can qualify for enhanced deductions worth roughly twice your cost basis. The formula to calculate the level of donation you can deduct is: Cost + ½ (Fair Market Value – Cost). For example, if you donate catered food that cost you $400 to prepare and would normally sell for $1,200, your deduction would be $800 ($400 + ½($1,200 – $400)), or twice what you spent to make it.
Maintain proper documentation showing donations went to qualified 501(c)(3) organizations. If you’ve made donations throughout 2025 without detailed records, coordinate with recipient organizations now to reconstruct documentation.
Illinois PTET Election
Illinois restaurant owners operating as pass-through entities can elect to pay state income tax at the entity level, converting personal state tax payments into fully deductible business expenses. The election must be made annually.
For operators exceeding the $40,000 SALT deduction cap, this election can save $3,000-$4,000 or more annually.
Ahlbeck & Cook: Your Recipe for Financial Success
Restaurant owners often leave substantial tax savings unclaimed because they address tax planning after critical deadlines have passed. The difference between operators who capture these opportunities and those who don’t comes down to awareness of what’s available and partnership with advisors who specialize in restaurant taxation.
At Ahlbeck & Cook, we specialize in helping restaurant owners navigate these complexities and capture every available tax benefit. Our team understands restaurant operations and the specific challenges you face because we work with hospitality businesses throughout the Chicago area and Midwest.
The year-end tax planning window is open now, but it closes December 31. Contact Ahlbeck & Cook today to ensure you’re capturing every available opportunity before these deadlines pass.
