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.

One Big Beautiful Bill Act of 2025: What Santa Monica Taxpayers Need to Know

Major federal tax changes took effect with the enactment of the One Big Beautiful Bill Act of 2025 (OBBBA). This legislation reshapes the individual tax landscape by making many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) permanent, introducing new deductions and credits, and modifying or eliminating others.

Below is a practical, plain-English overview of the most important individual tax changes under OBBBA, with specific considerations for Santa Monica taxpayers preparing for upcoming filing seasons.

Permanent Elimination of Personal Exemptions — With a New Senior Deduction

OBBBA permanently eliminates personal exemption deductions for most taxpayers. However, the law introduces a temporary enhanced deduction for seniors age 65 and older.

Key points include:

• A deduction of up to $6,000 per qualifying spouse
• Available for tax years 2025 through 2028
• Subject to income phase-outs
• Requires a valid Social Security number (ITINs do not qualify)

For retired and near-retirement taxpayers, especially married couples filing jointly, this provision may partially offset the permanent loss of personal exemptions.

Filing Deadline Confirmed: April 15, 2026

For the 2025 tax year:

• Federal individual income tax returns are due April 15, 2026
• California generally conforms to the same deadline

While disaster-related extensions may apply in limited circumstances, the standard filing deadline remains unchanged.

Capital Gains and Income Recognition Rules Remain in Place

OBBBA does not change the fundamental structure of capital gains taxation:

• Long-term capital gains continue to receive preferential tax rates
• Short-term gains remain taxed as ordinary income

Recent IRS guidance has clarified that income is taxable when it is credited and accessible, even if the taxpayer later loses access to the funds. This issue has become increasingly relevant for cryptocurrency holders and investment accounts subject to platform restrictions.

Unemployment Benefits Limited for High Earners

The new law restricts certain federally funded unemployment benefits for individuals whose prior-year wages exceed high-income thresholds.

This provision affects a narrow group of taxpayers and does not eliminate all unemployment benefits, but it does limit access to federally subsidized programs for higher-earning individuals.

Student Loan Forgiveness Rules Tightened After 2025

Temporary exclusions that allowed certain student loan forgiveness to be excluded from taxable income are scheduled to expire after 2025.

Beginning in 2026:

• Loan forgiveness due to death or permanent disability remains excluded
• Most other forgiveness events may generate taxable income

California does not fully conform to these federal rules, creating potential federal-state reporting differences.

Expanded Employer-Provided Benefits

OBBBA expands and modifies several employer-provided benefits, including:

• Increased exclusion limits for dependent care assistance beginning in 2026
• Permanent federal exclusion for employer-paid student loan assistance

California does not conform to all of these provisions, which may result in benefits being tax-free federally but taxable for California purposes.

Itemized Deductions and the Continued SALT Limitation

Key individual deduction rules remain restrictive:

• The state and local tax (SALT) deduction cap continues to limit itemized deductions
• Most miscellaneous itemized deductions remain permanently disallowed
• Attorneys’ fees are generally nondeductible at the individual level unless connected to business or rental activity

These rules increase the importance of proper income classification and entity-level planning.

Expanded Below-the-Line Deductions

OBBBA preserves and expands several deductions that apply even when taxpayers do not itemize, including deductions related to:

• Qualified tips
• Qualified overtime income
• Interest on certain auto loans
• Qualified business income (QBI)

These provisions may provide meaningful tax relief for certain individuals, depending on income and employment structure.

California Conformity Warning

California updated its general conformity date to January 1, 2025, but does not conform to many OBBBA provisions.

As a result:

• Federal and California taxable income may differ materially
• Additional adjustments may be required on California returns
• Planning must account for dual-system compliance

This is an area where professional guidance is particularly important.

Final Thoughts

The One Big Beautiful Bill Act of 2025 represents one of the most significant changes to individual tax law in recent years. While many provisions provide long-term certainty, others introduce new complexity—especially for seniors, higher-income taxpayers, and California residents.

For professional guidance on how these 2025 tax law changes may affect your specific situation, visit our
Tax Accountant in Santa Monica page.

Future posts will explore how OBBBA impacts business owners, California-specific compliance, and tax planning strategies in greater detail.