News Summary
California has passed the One Big Beautiful Bill Act, introducing significant tax framework changes for high-income business owners. Key features include a permanent extension of the Qualified Business Income Deduction, enhanced incentives for small business stock sales, increased SALT deduction limits, and restoration of 100% bonus depreciation. The bill aims to support economic growth and wealth creation through strategic tax planning. Business owners are encouraged to engage professional advice to maximize the benefits of these changes, particularly before the approaching PTET deadline in 2025.
California has enacted the “One Big Beautiful Bill Act” (OBBBA), a new piece of legislation that aims to significantly alter the tax framework for high-income business owners throughout the state. This law introduces several robust tax benefits and incentives that are designed to bolster economic growth and support entrepreneurs.
The OBBBA presents seven major tax planning strategies, including a permanent extension of the Qualified Business Income (QBI) Deduction, which was originally scheduled to expire in 2025. The expansion of eligibility for this deduction allows a greater number of high-earning business owners to benefit from it. Income phase-out ranges for the QBI deduction have been elevated, meaning that more business leaders are now able to qualify for these significant tax deductions, particularly beneficial in a high-tax state like California. However, gaining the benefits of the QBI deduction requires a proactive approach to tax strategy.
Additionally, the OBBBA enhances incentives for founders, early-stage employees, and investors through amendments to the Qualified Small Business Stock (QSBS) provisions. Under the new law, entrepreneurs can sell qualified small business stock on a tax-free basis for amounts up to the greater of either $15 million or ten times their original investment. This provision could lead to substantial tax savings, allowing business owners to save over 37% on taxes when selling their qualifying small business stock.
The legislation also increases the State and Local Tax (SALT) deduction limit to $40,000 by 2025, incorporating inflation indexing. Under the revised law, the SALT deduction will start to phase down after a modified adjusted gross income exceeds $500,000, reverting to a $10,000 cap for incomes above $600,000. This adjustment is particularly relevant in light of restrictions placed on SALT deductions by the previous Trump administration.
Another crucial change brought by the OBBBA is the restoration of 100% bonus depreciation for business asset purchases. This means that if a business invests $200,000 in assets, it could substantially reduce its tax liability by up to $74,000 in the first year. Moreover, Section 179 deduction limits will rise to $2.5 million, with a phase-out threshold increasing to $4 million, further facilitating tax savings for California businesses.
In line with enhancing wealth-building strategies, the lifetime gift and estate tax exemption is set to increase to $15 million per individual starting in 2026, also with adjustments for inflation. Business owners may find an added advantage in Cash Balance Plans, which can provide substantial pre-tax contribution opportunities. Combining these plans with Profit-Sharing Plans could yield annual savings exceeding $300,000 with the right financial planning.
The OBBBA is heralded as a blueprint for wealth creation and long-term investment in socially responsible endeavors. Business owners are encouraged to engage in strategic year-round tax planning with professionals to ensure they can maximize the benefits derived from the OBBBA.
Notably, there is a critical deadline approaching for the Pass-Through Entity Tax (PTET) provision, which is set for June 15, 2025. This provision offers a solution to the SALT deduction cap, transforming non-deductible state taxes into deductible business expenses. Business owners who qualify for the PTET can efficiently turn their state income taxes into fully deductible business expenses, making it a valuable aspect of the OBBBA.
In summary, the OBBBA represents a significant shift in California’s tax obligations for high-income business owners, offering multiple avenues for substantial tax savings and long-term financial planning. The changes require careful consideration and proactive engagement by business owners to leverage the provisions effectively.
Deeper Dive: News & Info About This Topic
- Forbes: 7 Tax Strategies for High-Income California Business Owners
- Procopio: Tax Services for Corporations and Individuals
- SmartAsset: California Mansion Tax Explained
- Kiplinger: GOP Tax Bill and California Living Costs
- CBS News: California’s Federal Tax Boycott
- Wikipedia: Taxation in California
Author: STAFF HERE COSTA MESA WRITER
COSTA MESA STAFF WRITER The COSTA MESA STAFF WRITER represents the experienced team at HERECostaMesa.com, your go-to source for actionable local news and information in Costa Mesa, Orange County, and beyond. Specializing in "news you can use," we cover essential topics like product reviews for personal and business needs, local business directories, politics, real estate trends, neighborhood insights, and state news affecting the area—with deep expertise drawn from years of dedicated reporting and strong community input, including local press releases and business updates. We deliver top reporting on high-value events such as the OC Fair, Concerts in the Park, and Fish Fry. Our coverage extends to key organizations like the Costa Mesa Chamber of Commerce and Boys & Girls Clubs of Central Orange Coast, plus leading businesses in retail, fashion, and technology that power the local economy such as Vans, Experian, and South Coast Plaza. As part of the broader HERE network, including HEREAnaheim.com, HEREBeverlyHills.com, HERECoronado.com, HEREHollywood.com, HEREHuntingtonBeach.com, HERELongBeach.com, HERELosAngeles.com, HEREMissionViejo.com, HERESanDiego.com, and HERESantaAna.com, we provide comprehensive, credible insights into California's dynamic landscape.
