News Summary
California’s One Big Beautiful Bill Act (OBBBA) aims to transform tax benefits for high-income business owners through various strategies. Key updates include an extended Qualified Business Income Deduction, improved Qualified Small Business Stock provisions, increased SALT deduction limits, and enhanced depreciation options. Entrepreneurs can significantly save on taxes under this new legislation, which also encourages strategic year-round tax planning for optimal benefits.
California is taking significant steps to transform its tax landscape for high-income business owners with the introduction of the One Big Beautiful Bill Act (OBBBA). This legislation features seven critical tax planning strategies aimed at providing substantial benefits to entrepreneurs and business leaders across the state.
One of the most notable aspects of the OBBBA is the permanent extension of the Qualified Business Income (QBI) Deduction, which was initially scheduled to expire in 2025. This deduction has been expanded to broaden eligibility criteria for high-earning business owners, making it easier for them to qualify. The income phase-out range for the QBI deduction has been increased, which means more California business leaders can now take advantage of this beneficial tax strategy in a state known for its high taxes.
The QBI deduction is particularly advantageous in high-tax states like California, offering significant potential tax savings. However, effectively utilizing this tax benefit requires a proactive approach to tax strategy.
Additionally, the OBBBA enhances incentives for founders, early-stage employees, and investors through Qualified Small Business Stock (QSBS) provisions. Entrepreneurs are now permitted to sell qualified small business stock tax-free, up to either $15 million or ten times their original investment, whichever is greater. This provision alone can lead to savings of over 37% on taxes when selling small business stock.
The legislation also influences other key areas of taxation. The State and Local Tax (SALT) deduction limit is set to rise to $40,000 by 2025 and will be indexed for inflation. However, the deduction will phase down once modified adjusted gross income surpasses $500,000, reverting to a $10,000 cap for income over $600,000.
Moreover, the OBBBA restores 100% bonus depreciation for the purchase of business assets, allowing business owners to fully depreciate these assets in the first year. For instance, if a business acquires $200,000 in assets, it could potentially reduce its tax liability by $74,000.
The new law also increases limits for the Section 179 deduction to $2.5 million, with a phase-out threshold now set at $4 million. This allows for greater immediate deductions for qualifying business purchases, further assisting business owners in managing their tax obligations.
In terms of estate planning, the lifetime gift and estate tax exemption is elevated to $15 million per individual starting in 2026, with provisions for inflation adjustments. This change reflects a broader trend of tax relief aimed at assisting wealth preservation among business owners.
Another noteworthy inclusion in the OBBBA is the increased value of Cash Balance Plans for business owners, which allows for substantial pre-tax contributions. By strategically combining these plans with profit-sharing arrangements, business owners could save over $300,000 annually, significantly benefiting their fiscal health.
Overall, the OBBBA is seen as a framework for boosting wealth-building and investing in socially responsible initiatives. To effectively harness the provisions of the OBBBA, business owners are advised to engage in strategic year-round tax planning with a professional.
Looking ahead, the deadline for electing the Pass-Through Entity Tax (PTET) provision in California is June 15, 2025. This provision presents a workaround for the SALT deduction cap by allowing non-deductible state taxes to be reclassified as deductible business expenses. This measure is particularly important given how the Trump tax plan limited SALT deductions to $10,000, which has substantially impacted high-income Californians.
Eligible business owners who qualify for the PTET can convert state income taxes into fully deductible business expenses, enabling them to achieve greater tax efficiency. Overall, understanding and implementing deferred tax strategies outlined in the OBBBA can lead to substantial savings over time for California’s entrepreneurial community.
Deeper Dive: News & Info About This Topic
- Forbes: 7 Tax Strategies for High-Income California Business Owners
- Wikipedia: Taxation in the United States
- Procopio: Tax Services for Corporations and Individuals
- Google Search: California Tax Legislation
- SmartAsset: California Mansion Tax
- Google Scholar: California Tax Strategies
- Sacramento Bee: California Tax News
- Encyclopedia Britannica: Tax
- Kiplinger: GOP Tax Bill and California
- Google News: California Tax Reform
Author: STAFF HERE SAN DIEGO WRITER
SAN DIEGO STAFF WRITER The SAN DIEGO STAFF WRITER represents the experienced team at HERESanDiego.com, your go-to source for actionable local news and information in San Diego, San Diego 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 Comic-Con International, San Diego County Fair, and San Diego Pride Festival. Our coverage extends to key organizations like the San Diego Regional Chamber of Commerce and United Way of San Diego County, plus leading businesses in biotechnology, healthcare, and technology that power the local economy such as Qualcomm, Illumina, and Scripps Health. As part of the broader HERE network, including HEREAnaheim.com, HEREBeverlyHills.com, HERECostaMesa.com, HERECoronado.com, HEREHollywood.com, HEREHuntingtonBeach.com, HERELongBeach.com, HERELosAngeles.com, HEREMissionViejo.com, and HERESantaAna.com, we provide comprehensive, credible insights into California's dynamic landscape.
