California Unveils One Big Beautiful Bill Act for Business Owners

News Summary

California has introduced the One Big Beautiful Bill Act (OBBBA), aimed at providing significant tax benefits for high-income business owners. Key provisions include a permanent extension of the Qualified Business Income Deduction, enhanced Qualified Small Business Stock provisions, and increased Section 179 deduction limits. Additionally, the law addresses SALT deduction limits and restores 100% bonus depreciation for business asset purchases. With strategic planning, entrepreneurs can leverage these changes to minimize tax burdens and stimulate investment.

California has officially unveiled the “One Big Beautiful Bill Act” (OBBBA), a transformative piece of legislation aimed at providing significant tax benefits for high-income business owners. The OBBBA introduces a suite of strategic tax planning options and extensions that will reshape the financial landscape for entrepreneurs and small business owners across the state.

Among the most notable provisions is the permanent extension of the Qualified Business Income (QBI) Deduction, initially set to expire in 2025. This deduction allows business owners to deduct a percentage of their qualified business income from their taxable income, thereby reducing their overall tax burden. The new law not only expands the eligibility criteria for high-earning business owners but also raises the income phase-out ranges, allowing more California business leaders to take advantage of this significant deduction.

The QBI deduction is particularly advantageous in high-tax states like California, where tax liabilities can be substantial. However, to fully benefit from the OBBBA, business owners are advised to implement proactive tax strategies.

Another major change introduced by the OBBBA is the enhancement of Qualified Small Business Stock (QSBS) provisions. This update allows entrepreneurs to sell qualified small business stock tax-free up to the greater of $15 million or ten times their original investment. As a result, business owners could potentially save over 37% on taxes when selling their small business stock, a substantial benefit that incentivizes founders, early-stage employees, and investors alike.

The OBBBA also addresses the State and Local Tax (SALT) deduction limits, raising the cap to $40,000 by 2025 and indexing it to inflation. However, the SALT deduction begins to phase down once modified adjusted gross income exceeds $500,000, returning to the previous $10,000 cap over $600,000, a crucial aspect for high-income individuals.

In a bid to stimulate investment and strengthen businesses, the OBBBA restores 100% bonus depreciation for business asset purchases. This provision allows businesses to take full depreciation in the first year of asset acquisition. For instance, if a business invests $200,000 in assets, they could reduce their tax liability by approximately $74,000 with this provision in effect.

Additionally, the OBBBA increases Section 179 deduction limits to $2.5 million while raising the phase-out threshold to $4 million. This modification allows businesses to write off the full cost of qualifying equipment and software, further incentivizing investment in business growth.

On the estate planning front, the lifetime gift and estate tax exemption will rise to $15 million per individual starting in 2026, including provisions for inflation adjustments. This change offers business owners more flexibility in transferring wealth and assets without incurring substantial tax liabilities.

Business owners could also find value in Cash Balance Plans, which allow for significant pre-tax contributions. By combining these plans with Profit-Sharing Plans, entrepreneurs could potentially save over $300,000 annually, maximizing their retirement savings and tax benefits.

Overall, the OBBBA is being framed as a blueprint for wealth building and encouraging investments in socially responsible initiatives. However, to effectively leverage the extensive benefits within the OBBBA, strategic year-round tax planning with a professional is highly recommended.

Another critical provision in the OBBBA is the Pass-Through Entity Tax (PTET) election. This provision allows high-income business owners to go around the SALT deduction cap by converting nondeductible state taxes into fully deductible business expenses. The deadline for electing PTET is June 15, 2025, making it a timely consideration for qualifying business owners.

The limitations on SALT deductions imposed by the Trump tax plan, which capped them at $10,000, have significantly impacted high-income Californians. The OBBBA provides a pathway for these individuals to mitigate the financial ramifications of this cap, thereby enhancing their post-tax income.

By understanding and acting strategically on these deferred tax strategies, business owners can realize significant savings over time, turning the OBBBA into a powerful tool for financial growth and sustainability.

Deeper Dive: News & Info About This Topic

• Forbes: 7 Tax Strategies for High-Income California Business Owners
• Wikipedia: Tax Policy in the United States
• Procopio: Tax, Corporate, and Individual Services
• Google Search: California One Big Beautiful Bill Act
• SmartAsset: California Mansion Tax
• Encyclopedia Britannica: Tax
• Sacramento Bee: California News
• Google News: California Tax Law
• Kiplinger: GOP Tax Bill and California Cost of Living
• CBS News: California Federal Tax Boycott
• Nomad Capitalist: California Prop 19