Restaurant Tax Deductions: What You Can Write Off in 2026

Why restaurant tax deductions matter

Restaurants operate on thin margins — typically 3-9% net profit. Every legitimate deduction directly improves your bottom line. A $10,000 deduction at a 25% effective tax rate saves you $2,500 in taxes. Over a year, properly tracking all deductions can save a restaurant tens of thousands of dollars.

This guide covers every major deduction available to US restaurant owners under current tax law.

Cost of goods sold (COGS)

Your largest deduction. COGS includes everything that goes into the food and beverages you sell:

• Food and ingredient costs: Everything purchased for meal preparation
• Beverage costs: Alcohol, soft drinks, coffee, tea
• Packaging: Takeout containers, bags, napkins for off-premise orders
• Condiments and supplies: Salt, pepper, cooking oils, cleaning supplies used in food prep areas

Tracking tip: Keep every supplier invoice. Most POS systems can generate COGS reports by category. Aim for food cost of 28-35% of revenue and beverage cost of 20-25%.

Labor deductions

Wages and salaries All employee compensation is deductible: hourly wages, salaries, overtime, bonuses, and commissions.

Payroll taxes The employer's share of FICA (Social Security and Medicare), FUTA, and state unemployment taxes are deductible.

Employee benefits Health insurance premiums, retirement plan contributions (401(k) match, SIMPLE IRA), and group life insurance premiums are deductible.

FICA tip credit (Form 8846) This is one of the most valuable and most overlooked restaurant tax benefits. Employers can claim a tax CREDIT (not just a deduction — a dollar-for-dollar reduction in tax owed) for the employer's share of FICA taxes paid on tips that exceed the federal minimum wage.

How it works: If a tipped employee receives $200 in tips during a pay period and their direct wage is $2.13/hr, you calculate the FICA tip credit on the tips that exceed the amount needed to bring their wage to $7.25/hr. The credit equals 7.65% of those excess tips.

For a restaurant with 20 tipped employees averaging $150/day in tips, the FICA tip credit can be worth $25,000-$40,000 per year.

File Form 8846 with your annual return. This is free money that many restaurant owners miss.

Occupancy costs

Rent Your monthly lease payment is fully deductible. If you prepay rent, you can only deduct the portion attributable to the current tax year.

Utilities Electricity, gas, water, sewer, trash removal, and internet service for your restaurant location.

Property taxes If you own the building, property taxes are deductible. If you pay property taxes as part of your lease (common in NNN leases), that portion is also deductible.

Insurance premiums All business insurance: general liability, property, workers' comp, liquor liability, business interruption, umbrella policies.

Equipment and depreciation

Section 179 expensing You can immediately expense (deduct in the year of purchase) up to $1,220,000 (2024 limit, adjusted annually) of qualifying equipment: commercial ovens, refrigerators, dishwashers, POS systems, furniture, vehicles used for business.

Bonus depreciation 100% bonus depreciation was available through 2022; it's phasing down (80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026). Plan major equipment purchases with this phase-down in mind.

Regular depreciation Equipment not expensed under Section 179 or bonus depreciation is depreciated over its useful life: 5 years for kitchen equipment, 7 years for furniture and fixtures, 15 years for restaurant improvements (Qualified Improvement Property under TCJA).

Repair and maintenance Routine maintenance — fixing a broken dishwasher, replacing a burner on a stove, repairing HVAC — is immediately deductible. Improvements that significantly extend the life of the equipment must be capitalized and depreciated.

Marketing and advertising

• Online advertising: Google Ads, Facebook/Instagram ads, Yelp advertising
• Website costs: Hosting, domain registration, design, online ordering platforms
• Print materials: Menus, business cards, flyers, signage
• Third-party platform fees: DoorDash, Uber Eats, and Grubhub commission fees are deductible as advertising or service expenses
• Loyalty programs: Costs of operating customer loyalty or rewards programs

Meals and entertainment

Employee meals Meals provided to employees during their shift are 50% deductible (previously 100% during COVID — that provision expired).

Business meals Meals with clients, vendors, or business contacts where business is discussed are 50% deductible. Keep receipts and note the business purpose, attendees, and topics discussed.

Professional services

• Accounting and bookkeeping fees
• Legal fees for business matters
• Consulting fees (menu development, operations, marketing)
• Credit card processing fees (typically 2-3.5% of revenue — a significant deduction)
• Payroll service fees
• POS system monthly fees

Travel and vehicle expenses

• Business travel: Conferences, food shows, supplier visits
• Vehicle expenses: Standard mileage rate (67¢/mile in 2024) for business use, or actual expenses (gas, insurance, maintenance, depreciation) prorated by business use percentage
• Delivery vehicle expenses: If you operate delivery, all associated vehicle costs are deductible based on business use

Often-missed deductions

Startup costs If you opened your restaurant this year, you can deduct up to $5,000 in startup costs immediately (reduced dollar-for-dollar for costs over $50,000). Remaining startup costs are amortized over 15 years.

Uniform costs Chef coats, branded uniforms, aprons, non-slip shoes required by your dress code — all deductible. If you provide uniforms, the cost is deductible. If employees buy their own, consider reimbursing (tax-free to the employee under an accountable plan).

Music licensing ASCAP, BMI, or SESAC licensing fees for playing music in your restaurant.

Waste removal and grease trap cleaning Regular grease trap pumping, dumpster rental, and recycling services.

Pest control Monthly pest control service — deductible as a routine operating expense.

Training costs Food safety training, ServSafe certifications, TIPS alcohol training, management training, and onboarding costs for new hires.

Bad debt If you extend credit to catering clients or corporate accounts and they don't pay, the uncollected amount is deductible as bad debt.

Record-keeping requirements

The IRS requires you to maintain records supporting every deduction: - Receipts: For all expenses over $75 (recommended for all expenses) - Bank and credit card statements: Reconciled monthly - Payroll records: Maintained for at least 4 years - Depreciation schedules: Maintained for the life of each asset plus 3 years - Mileage logs: If claiming vehicle deductions

Use accounting software (QuickBooks, Xero, FreshBooks) to categorize expenses in real time. Don't wait until tax season to organize a shoebox of receipts.

What DocketPack provides

DocketPack generates IRS payroll and tax compliance documents, tip reporting procedures, employment record templates, and financial record-keeping policies — all customized to your restaurant. Each document references the specific IRS sections and state requirements that apply to your business, helping you maintain the documentation needed to support your deductions.