Restaurant owner taxes and deductions

Tipped staff create a credit, not just a cost. You pay employer Social Security and Medicare on tips your staff report, and a federal credit gives most of that back, it is claimed on a separate form and it is the single most commonly missed item in the trade.

Food is cost of goods sold rather than an overhead, and the 50% limit on business meals has nothing to do with it, that limit is about meals you eat, not food you sell. Kitchen equipment and a fit-out are Section 179 property, and a building you own can be cost segregated so parts of it depreciate far faster than 39 years. One thing changed against you this year: meals you provide to your own staff stopped being deductible at all in 2026. They were half deductible from 2018 and fully deductible before that, and they are now nothing, though they remain tax-free to the employee eating them.

The deductions with a rule attached

These are the lines where the answer is not simply "keep the receipt"each has a cap, a percentage or a test that decides how much of the spend you actually get:

Equipment: Section 179 property. Deduct the whole cost in the year it goes into service rather than spreading it over the asset's life, up to $2,560,000 a year, and 100% bonus depreciation is now permanent. The catch is the business-use test: anything used more than 50% for the business qualifies, and you deduct at that percentage rather than the full price. So anything you also use at home comes off at the share that is genuinely work, not the whole invoice.

The rest of the restaurant owner deduction list

Ordinary and necessary business expenses, deductible in full in the year you pay them, provided they are genuinely for the business:

Food and ingredients
Staff wages
Your share of payroll taxes
Rent
Liability insurance
Permits and licenses
Utilities
Marketing

Worth knowing

Tips create a payroll tax credit most owners never claim, and food is cost of goods rather than an ordinary expense.

That is what is specific to this trade. The larger deductions are the universal ones, see the full checklist.

What each deduction is worth to you

On $100,000 of profit with no state income tax, $1,000 deducted saves $305, 30.5%, because it comes off self-employment tax and income tax together:

Net profit	Saved per $1,000 deducted	Effective
$40,000	$231	23.1%
$100,000	$305	30.5%
$200,000	$297	29.7%

The last row is worth less than the one above it, and that is not a mistake: past the Social Security wage base the self-employment part of the saving drops from 15.3% to 2.9%, and the higher income-tax bracket does not quite make up the difference. A deduction is worth most in the middle.

Add a state income tax and every row rises. The 1099 calculator applies that layer.

Where this comes from

The rules on this page that are specific rather than general are cited below. Follow a link to read the provision itself rather than taking our word for it:

Employers may claim a credit for FICA paid on reported tips, on Form 8846IRC 45B
Meals furnished to employees for the employer's convenience are not deductible from 2026IRC 274(o)

What these words mean

Section 179: A rule letting you deduct the whole cost of equipment in the year you start using it, instead of spreading it over the years you own it.
Depreciation: Spreading the cost of something long-lasting, a vehicle, a camera, a tractor, across the years you use it, rather than deducting it all at once.

General information about how these deductions work, not tax advice. Whether a particular expense is deductible for you depends on facts this page does not have, check with a tax professional before claiming anything listed here.