Top 10 Tax Deductions Every Restaurant Must Know to Maximize Savings

Running a restaurant is expensive — rising food costs, labor shortages, and tight margins make every dollar count. But the good news? Restaurants qualify for more tax deductions than almost any other business type. The problem is that MOST owners don’t claim all of them simply because they don’t know they exist.

Here’s a complete, easy-to-understand guide to the top 10 tax deductions every restaurant should be using — plus how proper restaurant tax planning ensures you're not leaving money on the table.

1. Food and Beverage Costs (COGS)

Your food, beverage, and supply costs are fully deductible. This includes:

• produce

  
  

• meat and seafood

  
  

• dairy

  
  

• alcohol (if sold)

  
  

• paper goods

  
  

• sauces and ingredients

  
  

• spices, disposables, condiments

  
  

Accurate tracking of COGS is essential for tax savings AND profitability. A good restaurant accounting system should track this in real time.

2. Employee Wages and Payroll Taxes

Labor is your biggest expense — and fully deductible. This includes:

• hourly wages

  
  

• salaries

  
  

• overtime

  
  

• payroll taxes

  
  

• employer matches

  
  

A strong restaurant payroll system ensures accuracy and compliance.

3. Tip Credits and FICA Credits

Restaurants can claim a FICA Tip Credit, allowing you to reduce taxes by crediting the employer portion of Social Security and Medicare taxes on employee tips.

This is one of the most MISSED tax credits in the industry.

4. Rent and Utilities

Whether you lease or own your location, these are deductible:

• monthly rent

  
  

• electricity

  
  

• gas

  
  

• water

  
  

• trash removal

  
  

• internet

  
  

• phone service

  
  

Restaurants often pay more for utilities, so this deduction adds up quickly.

5. Equipment Purchases (Section 179 Deduction)

Restaurants spend heavily on equipment — and nearly ALL of it can be deducted immediately using Section 179:

• ovens

  
  

• refrigerators

  
  

• freezers

  
  

• fryers

  
  

• dishwashers

  
  

• POS systems

  
  

• furniture

  
  

• grills

  
  

Instead of depreciating equipment over 5–7 years, you deduct the full cost NOW.

6. Repairs & Maintenance

Repairs to keep your restaurant operational are deductible:

• HVAC repairs

  
  

• plumbing fixes

  
  

• hood cleaning

  
  

• equipment repair

  
  

• electrical work

  
  

• handyman services

  
  

This deduction is huge for older restaurants.

7. Advertising & Marketing Costs

Deduct every dollar spent on:

• website design

  
  

• Instagram ads

  
  

• Google ads

  
  

• menus and signage

  
  

• loyalty programs

  
  

• photography and branding

  
  

• local sponsorships

  
  

If it helps bring customers in the door, it’s deductible.

8. Cleaning and Sanitation Supplies

Restaurants spend heavily on cleaning — and it’s all deductible:

• detergents

  
  

• sanitizers

  
  

• bathroom supplies

  
  

• dishwashing chemicals

  
  

• janitorial services

9. Professional Services (CPA, Legal, Consulting)

Payments to your CPA, bookkeeper, attorney, and consultants are fully deductible — and essential for staying compliant.

10. Depreciation on Renovations

If you remodeled your restaurant, expanded a patio, upgraded bathrooms, or improved your kitchen, these improvements are deductible.

Many owners miss this deduction — but a good restaurant CPA will catch every opportunity.

Final Thoughts: Don’t Miss What You’re Owed

Restaurant taxes are complex — and one mistake can cost thousands. With proper restaurant accounting, you can:

• claim every deduction

  
  

• reduce taxable income

  
  

• improve cash flow

  
  

• reinvest savings into your restaurant

  
  

If you want expert help identifying missed deductions and lowering your tax bill, CPA4Restaurants is here to help.