Tax Planning Opportunities After the One Big Beautiful Bill Act of 2025

Recent federal tax law changes have reshaped not only how income is taxed, but also how taxpayers should plan ahead. With many provisions now permanent and others newly introduced, proactive tax planning has become more important than ever—especially for California residents navigating a dual federal and state system.

Below is a practical overview of key tax planning considerations for individuals and business owners preparing for the 2025 tax year and beyond.

More Income Phaseouts Mean Planning Matters Earlier

Many deductions and credits are now subject to expanded income phaseouts. As a result, small changes in adjusted gross income (AGI) can have an outsized impact on tax liability.

Effective planning may involve:

• Timing income and deductions strategically
• Managing capital gains recognition
• Coordinating retirement contributions and distributions

Early planning—rather than year-end scrambling—can preserve benefits that would otherwise be lost.

SALT Deduction Limits and Entity-Level Strategies

The limitation on the deduction for state and local taxes continues to affect higher-income taxpayers, particularly in California.

Planning considerations include:

• Evaluating entity-level tax elections where available
• Coordinating federal and California reporting differences
• Modeling long-term effects rather than focusing on a single year

What works federally may not translate cleanly at the state level.

Charitable Giving Requires More Precision

Charitable contributions remain deductible, but additional limitations and thresholds make proper planning essential.

Taxpayers should consider:

• Bunching contributions into specific years
• Reviewing substantiation and appraisal requirements
• Coordinating charitable giving with AGI-sensitive deductions

Improper timing or documentation can significantly reduce the expected tax benefit.

Research Costs, Depreciation, and Capital Investment Timing

For business owners, the timing of expenses and capital purchases plays a major role in tax outcomes.

Key areas to review include:

• Elections related to research expenditures
• Depreciation and expensing choices
• The gradual phase-down of bonus depreciation

These decisions can affect taxable income for years, not just the current return.

Retirement and Investment Planning Are Interconnected

Tax planning increasingly intersects with retirement strategy.

Important considerations include:

• Required minimum distribution rules
• Roth conversion timing
• Capital gains management
• Interaction between retirement income and Medicare thresholds

Planning these items in isolation often leads to unintended tax consequences.

California Nonconformity Complicates Planning

California does not automatically follow federal tax changes, which means:

• Federal deductions may be limited or disallowed in California
• Separate calculations and adjustments may be required
• Estimated taxes may need closer monitoring

Ignoring these differences can result in underpayment penalties or unexpected balances due.

Planning Ahead Is Now Essential

Modern tax planning is no longer about finding last-minute deductions. It requires coordinated decisions across income, investments, retirement, business structure, and timing—often months in advance.

For professional guidance on how to implement an effective tax planning strategy tailored to your situation, visit our
Tax Accountant in Santa Monica page.

Future posts will continue to explore retirement planning, California-specific issues, and compliance considerations that impact taxpayers throughout the year.

One Big Beautiful Bill Act of 2025: Key Business Tax Changes Santa Monica Owners Should Know

The One Big Beautiful Bill Act of 2025 (OBBBA) did more than reshape individual tax rules — it introduced major changes affecting businesses of all sizes. From research deductions and depreciation to employee credits and entity-level planning, OBBBA significantly alters the tax landscape for business owners.

Employee Retention Credit: Enforcement and Disallowances Increase

OBBBA significantly tightens rules surrounding the Employee Retention Credit (ERC).

Key developments include:

• Increased IRS scrutiny of ERC claims
• Expanded authority to disallow improper or unsupported credits
• Aggressive recovery efforts for erroneously issued refunds

Many businesses that claimed ERC benefits through third-party promoters are now facing audits, repayment demands, and penalties. Businesses should carefully review prior ERC claims and documentation before responding to IRS notices.

Research Expenditures and the New IRC §174A Election

One of the most impactful business changes under OBBBA involves research and development costs.

Highlights include:

• A new IRC §174A election allowing amortization of domestic research expenditures
• Retroactive relief for certain small taxpayers
• Accelerated amortization options available to all taxpayers going forward

Proper classification of research costs and timely elections are now critical to preserving deductions and avoiding future adjustments.

Business Interest Expense Limitation Still Applies

The business interest expense limitation under IRC §163(j) remains in place, continuing to restrict interest deductions for many businesses.

Important considerations:

• Certain small businesses and real property trades may qualify as excepted taxpayers
• Capitalization rules may further limit deductible interest
• Elections must be made carefully and consistently

This area continues to create complexity for real estate owners and leveraged businesses.

BOI Reporting: Compliance Deadlines Matter

Beneficial Ownership Information (BOI) reporting requirements continue to apply to many entities, including LLCs and closely held corporations.

Key points:

• Initial and ongoing filing deadlines must be met
• Failure to file can result in significant penalties
• Foreign-owned and complex ownership structures face heightened scrutiny

BOI compliance is now a routine but mandatory part of entity maintenance.

C Corporations: Charitable Deductions and QSBS

OBBBA did not eliminate the benefits available to C corporations, but planning remains critical.

Notable areas include:

• Charitable contribution deduction limitations
• Continued availability of Qualified Small Business Stock (QSBS) exclusions
• Structuring considerations for startups and investors

Entity choice remains a strategic decision with long-term tax consequences.

Partnerships: Payments, Liabilities, and Representatives

OBBBA highlights several partnership-level issues that frequently trigger IRS disputes:

• Disguised payments for services
• Self-employment tax treatment of limited partners
• Final regulations on recourse liabilities
• Rules governing partnership representatives

Errors in partnership agreements or reporting can lead to audits and unexpected tax exposure.

Depreciation, §179, and Business Vehicles

Depreciation rules remain a major planning area for businesses.

Key points:

• IRC §179 expensing remains available but subject to limits
• Bonus depreciation continues to phase down
• Special rules apply to business vehicles and clean vehicle credits

Timing and asset classification are critical to maximizing deductions.

Business Credits and Energy Incentives Scaled Back

OBBBA accelerates the termination of several energy-related credits while preserving others.

Important changes include:

• Early termination of certain clean energy incentives
• Continued availability of credits for FICA paid on tip income
• Ongoing credits for paid family and medical leave and employer-provided childcare

Businesses relying on energy credits should reassess long-term tax projections.

California Nonconformity: A Continuing Trap

California does not conform to many OBBBA business provisions.

As a result:

• Federal deductions may be disallowed for California purposes
• Separate depreciation and amortization schedules may be required
• Entity-level planning must account for dual systems

This divergence significantly increases compliance complexity for California businesses.

Final Thoughts

OBBBA introduces meaningful opportunities — and serious risks — for business owners. Research cost elections, depreciation planning, ERC exposure, and entity structuring decisions now carry heightened importance, particularly in California.

For guidance on how these business tax changes affect your company, visit our
Tax Accountant in Santa Monica page.

Future posts will cover OBBBA-driven tax planning strategies, retirement changes, and California-specific compliance issues.