California Introduces One Big Beautiful Bill Act for Business Owners

News Summary

California’s One Big Beautiful Bill Act (OBBBA) is set to reform the tax system for high-income business owners. Key features include the permanent extension of the Qualified Business Income (QBI) Deduction, enhanced Qualified Small Business Stock (QSBS) provisions, and increased limits on the State and Local Tax (SALT) deduction. Additionally, the OBBBA reinstates 100% bonus depreciation and raises Section 179 deduction limits, enabling significant savings for entrepreneurs. This bill aims to provide financial flexibility and promote investment among California business leaders.

California has introduced the “One Big Beautiful Bill Act” (OBBBA), a legislative framework designed to transform the state’s tax system specifically for high-income business owners. This new bill encompasses a range of tax planning strategies aimed at empowering entrepreneurs and enhancing their financial flexibility.

Key features of the OBBBA include the permanent extension of the Qualified Business Income (QBI) Deduction, initially scheduled to end in 2025. This deduction has been expanded to broaden eligibility for high-earning business owners, raising the income phase-out ranges. Consequently, more California business leaders can now qualify for this significant tax benefit, which is particularly advantageous in high-tax states like California, provided they engage in proactive tax strategies.

In addition to the QBI deduction, the OBBBA presents enhanced incentives for founders, early-stage employees, and investors through new Qualified Small Business Stock (QSBS) provisions. Under these provisions, entrepreneurs can sell qualified small business stock without incurring taxes up to the greater of $15 million or 10 times their initial investment. This could yield savings of over 37% on taxes when selling small business stock, making it a critical consideration for business owners planning liquidity events.

The OBBBA also addresses the State and Local Tax (SALT) deduction issues, raising its limit to $40,000 by 2025 and indexing it for inflation. However, it’s important to note that this deduction will begin to phase down once modified adjusted gross income exceeds $500,000, ultimately reverting to a cap of $10,000 for incomes over $600,000. This change may provide a degree of relief for many high-income earners who were previously affected by the limitations imposed by the Trump tax plan.

Furthermore, the OBBBA reinstates 100% bonus depreciation for business asset purchases, enabling companies to fully depreciate assets in the first year. For instance, a business that buys $200,000 worth of assets could potentially reduce its tax liability by $74,000 immediately. This incentivizes investment in equipment and infrastructure among business owners.

The act also increases the Section 179 deduction limits to $2.5 million, coupled with a higher phase-out threshold of $4 million, allowing businesses to deduct significant expenses associated with equipment purchases. Additionally, the lifetime gift and estate tax exemption will be raised to $15 million per individual starting in 2026, with adjustments for inflation, facilitating long-term wealth transfer strategies.

Another noteworthy element of the OBBBA is the potential increase in value for Cash Balance Plans. Business owners can make substantial pre-tax contributions under these plans, which, when combined with Profit-Sharing Plans, may facilitate annual savings exceeding $300,000 with effective planning.

The OBBBA is viewed as a strategic framework for wealth-building while allowing investments in socially responsible causes. Business owners are encouraged to engage in year-round tax planning with a qualified professional to maximize the advantages provided by the new legislation.

Deadline and Implementation Details

Business owners should note that the deadline for electing the Pass-Through Entity Tax (PTET) provision in California is June 15, 2025. The PTET offers a workaround for the SALT deduction cap, converting non-deductible state taxes into deductible business expenses. This provision stands to benefit many high-income earners who have been significantly affected by the previous SALT deduction limitations.

In summary, the One Big Beautiful Bill Act represents a substantial shift in California’s tax landscape for high-income business owners, incorporating various provisions aimed at reducing tax burdens and promoting investment. Understanding and implementing deferred tax strategies through these new measures could lead to significant financial benefits over time.

Deeper Dive: News & Info About This Topic

• Forbes: 7 Tax Strategies for High-Income California Business Owners
• Wikipedia: Taxation in the United States
• Sacramento Bee: California News
• Google Search: California Tax Reform
• SmartAsset: California Mansion Tax
• Encyclopedia Britannica: Tax
• Kiplinger: GOP Tax Bill and California Cost of Living
• Google News: California One Big Beautiful Bill Act
• CBS News: California Federal Tax Boycott
• Procopio: Tax Services