Top Tax Deductions for Utah Restaurants (2025 Edition)

Restaurant margins are thin enough without overpaying on taxes. Between the new federal tip regulations, Utah's restaurant tax requirements, and several expiring benefits, 2025 presents both opportunities and pitfalls for Utah restaurant owners.

Here's what you need to know to reduce your tax bill this year.

Time-Sensitive Opportunities Expiring Soon

Employee Retention Credit - Deadline: April 15, 2025

If your restaurant had to reduce capacity, switch to takeout-only, or saw revenue drop by 20% or more during 2020-2021, you likely qualify for the Employee Retention Credit. The credit is worth up to $26,000 per employee, but you must file amended payroll tax returns by April 15, 2025 for 2021 credits.

Most restaurants qualify. If you haven't claimed this yet, it's worth having your accountant review your eligibility immediately.

Energy Efficiency Credits - Expiring December 31, 2025

Federal energy efficiency credits end this year. If you're planning any HVAC upgrades, LED lighting conversions, or insulation improvements, doing them before December 31 could save you thousands. The Section 179D commercial building deduction offers $2.90 to $5.81 per square foot for qualifying improvements that reduce energy use by 25% or more.

Solar Tax Credit Changes - Must Start by July 4, 2026

The 30% federal solar tax credit requires construction to begin by July 4, 2026. After that, it's gone. Combined with Utah's 10% state credit, solar installations effectively cost 40% less through tax savings. If you're considering solar, get quotes now - permitting and planning take months.

Major Federal Changes for 2025

New Tip Tax Rules

Starting this year, your tipped employees won't pay federal tax on their first $25,000 in tips. They also get a $12,500 deduction for overtime pay. While this doesn't directly reduce your taxes, it's a significant benefit for staff retention and recruiting.

Your responsibility: Switch to electronic tip reporting. The IRS no longer accepts handwritten tip logs. Your POS system should handle this, but verify it's properly configured.

Equipment Write-offs Are Shrinking

Section 179 still allows you to write off up to $1.25 million in equipment purchases immediately, but bonus depreciation dropped from 60% to 40% this year. Next year it falls to 20%, then disappears entirely.

What this means: If you need new kitchen equipment, POS systems, or delivery vehicles in the next few years, buying in 2025 saves more in taxes than waiting.

FICA Tip Credit Remains Valuable

You can claim a credit for the employer's portion of Social Security and Medicare taxes on tips above $5.15 per hour. For a typical full-service restaurant with 20 tipped employees, this often equals $10,000-15,000 in annual tax credits.

Many restaurants miss this credit entirely. Make sure your payroll provider is calculating it correctly.

Utah-Specific Considerations

The 1% Restaurant Tax

Utah charges an additional 1% tax on all restaurant food and beverage sales in most counties. This is on top of regular sales tax, bringing total tax collection to 7-9% in most areas.

Key compliance points:

• File Form TC-62F monthly
• The tax applies to all prepared food, including takeout
• Don't include collected taxes in your gross receipts
• Keep detailed records - Utah audits restaurant tax aggressively

State Tax Credits Worth Pursuing

Enterprise Zone Credits

• $750 per new full-time employee
• Extra $500 if paying 125% of county average wage
• Additional $200 for providing health insurance

New Childcare CreditIf you help employees with childcare costs, Utah now offers a 10% credit on what you spend. On-site childcare facilities qualify for 20%. The credit carries forward five years if you can't use it all immediately.

Rural Restaurant IncentivesOperating outside the Wasatch Front? The REDTIF program can rebate 30-50% of state taxes for restaurants creating 50+ jobs. Unlike urban development programs, rural restaurants actually qualify.

Maximizing Common Deductions

Food Costs and Inventory

Every restaurant deducts food costs, but many miss opportunities:

• Spoilage and waste are fully deductible - track it properly
• Employee meals are 100% deductible if provided for your convenience (during shifts)
• Promotional food giveaways and samples are fully deductible

With inflation, review your inventory method. FIFO (first-in, first-out) often results in higher costs of goods sold and lower taxable income during inflationary periods.

Delivery and Technology Expenses

Third-party delivery fees are painful but fully deductible. So are:

• Delivery packaging and supplies
• POS system subscriptions
• Online ordering platforms
• Kitchen display systems
• Inventory management software

Marketing Deductions Often Missed:

• Social media advertising
• Influencer partnerships
• Email marketing platforms
• Website maintenance
• Loyalty program costs

Repairs vs. Improvements

The IRS distinction matters:

• Repairs (immediately deductible): Fixing equipment, repainting, replacing broken items
• Improvements (must depreciate): New equipment, renovations, additions

The IRS allows immediate deduction of expenses under $2,500 per invoice if you have a written capitalization policy. Many restaurants could benefit from this but haven't established the required policy.

Practical Steps for 2025

Immediate Actions

1. Review Employee Retention Credit eligibility - The April 15 deadline is real
2. Schedule energy efficiency improvements - Credits expire December 31
3. Evaluate equipment needs - Higher write-offs available this year
4. Update tip reporting systems - Electronic reporting is now mandatory

Monthly Tasks

• Reconcile POS reports with bookkeeping
• File Utah restaurant tax return
• Review food cost percentages
• Track vehicle mileage for any delivery operations

Before Year-End

• Analyze whether major purchases should be accelerated
• Review entity structure with your CPA (some may benefit from Utah's pass-through entity election)
• Ensure all documentation is organized for deductions
• Calculate estimated tax payments to avoid penalties

Documentation That Prevents Problems

The IRS doesn't audit randomly. They look for patterns. Protect yourself by maintaining:

• Original receipts for all expenses over $75
• Detailed records connecting expenses to business purpose
• Separate documentation for any vehicle use
• Clear records distinguishing business from personal expenses

For tip reporting, keep both daily POS reports and employee tip declarations. For the FICA tip credit, maintain quarterly calculations showing how you arrived at the credit amount.

Working With Delivery Platforms

Those 20-30% delivery platform fees hurt, but they're fully deductible. Track separately:

• Commission fees
• Delivery fees passed to drivers
• Marketing fees
• Tablet rental or technology fees

Some platforms bundle these together. Request detailed statements that break out each component for cleaner deduction documentation.

Planning Beyond 2025

Several valuable provisions expire soon:

• The 20% pass-through deduction ends December 31, 2025
• Bonus depreciation phases out completely by 2027
• Energy efficiency credits have no planned extension

Utah's tax environment remains relatively favorable with a flat 4.55% income tax rate, but federal changes could significantly impact your tax bill in coming years. Building good documentation habits and maximizing current benefits positions you well regardless of future changes.