đź“ť usncan Note: 7 Tax Strategies High-Income California Business Owners Via OBBBA
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CALABASAS, CALIFORNIA – OCTOBER 04: Big-wave surfer Laird Hamilton and former professional volleyball player Gabby Reece enjoy the Laird Superfood “Cinn-Full” Cold Brew at Erewhon on October 04, 2023 in Calabasas, California. (Photo by Joe Scarnici/Getty Images for Laird Superfood x Erewhon)
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California has always been a land of innovation, diversity and ambition. For high-income business owners, particularly those who value progressive ideals and financial empowerment, navigating the state’s complex tax landscape often feels like walking a tightrope over a canyon of ever-shifting legislation. The newly enacted “One Big Beautiful Bill Act” (OBBBA), however, is poised to reshape that landscape, offering opportunities for financial planning, wealth preservation and proactive tax planning for California business owners. Here are 7 valuable tax planning stategies for high-income California under the OBBBA.
As a financial planner rooted in California, I’ve spent decades guiding entrepreneurs, professionals and executives through the labyrinth of tax codes, always with an eye toward maximizing both prosperity and minimizing taxes. Whether you like or hate the OBBBA, it does provide opportunities for those who understand how to leverage its provisions. Let’s dig into how you, as a high-income California business owner, can make the most of the tax law changes under the OBBBA.
1. The Qualified Business Income Deduction
The OBBBA gives us a permanent extension of the Qualified Business Income (QBI) Deduction. For years, this 20% deduction on business income was threatened with a looming sunset at the end of 2025. Now, it is enshrined as a cornerstone of the tax code. But the bill doesn’t stop there: it dramatically expands eligibility for high-earning business owners.
The QBI deduction does have discriminatory provisions that add phase-out and more hoops to jump through, depending on what type of business you run. However, the QBI under the OBBBA does increase the income phase-out ranges, which means more California business leaders will qualify for this deduction.
The QBI deduction is particularly impactful in a high-tax state like California. But don’t just assume your CPA or financial advisor is optimizing your deduction. Now more than ever, proactive tax strategy, and yes, a little creativity, can yield immense benefits.
2. QSBS: Unlocking Tax-Free Growth For Startups And Early Investors
California’s startup ecosystem is legendary, from Silicon Valley tech giants to nimble green-energy disruptors. The OBBBA turbocharges incentives for founders, early-stage employees and investors via the Qualified Small Business Stock (QSBS) provisions.
Under the new law, you can now sell your qualified small business stock tax-free up to the greater of $15 million or 10 times your original investment (up from the previous $10 million cap). When accounting for Federal Capital Gains Taxes, the 3.8% NIIT investment income tax and California’s 13.3% top tax rate on capital gains, the QSBS could save you over 37% on your taxes when selling your small business stock. When having a large exit, this could be millions of dollars more in your pocket
3. The SALT Cap Gets Less Painful
The State and Local Tax (SALT) deduction has been a pain point for California’s middle-income earners and up since the cap was set at $10,000 during the first Trump term. The OBBBA raises the 2025 SALT tax deduction limit to $40,000 and indexes it for inflation. If you own a median home in most of California, your property taxes alone would put you above the old SALT cap. If you have income to pay for said house, you are likely well beyond the old $10,000 SALT cap.
However, it is not all good news for California high-income business ownership. Once your modified adjusted gross income is above $500,000, the deduction begins to phase down. Once you hit $600,000, it reverts to the old $10,000 cap. For those in the $500,000–$600,000 range, this creates an urgent need for careful planning, especially if you’re using PTET (Pass-Through Entity Tax) workarounds.
I repeat. If your income is near or above $500,000, you will still want to continue with a PTET tax-planning strategy. If your income is at or above this range and your financial advisor or CPA hasn’t helped you minimize taxes with the PTET strategy, it is probably time to upgrade your financial team.
4. 100% Bonus Depreciation: Invest In Your Business, Reap The Rewards
One of the most powerful incentives in the new bill is the return (and permanence) of 100% bonus depreciation. If you purchase business assets, such as equipment, vehicles or make certain property improvements, you can now deduct the full cost in the first year.
Here’s a quick example. If you’re in the 37% tax bracket and buy $200,000 in assets, you can save $74,000 in taxes immediately. But, as always, remember the rules around depreciation recapture when you sell or dispose of those assets in the future. This provision applies to qualifying property placed in service after January 19, 2025.
Keep in mind, you are spending $200,000 to get a $74,000 tax deduction. Only buy things that will help your business operate more efficiently and increase its profitability well into the future.
5. Enhanced Section 179: For The Growth-Minded Entrepreneur
Section 179 has long allowed business owners to deduct the cost of qualifying property in the year it’s placed in service, but with some limits. The OBBBA increases this deduction to $2.5 million (up from $1.6 million), and the phase-out threshold rises to $4 million (from $2.89 million).
6. Estate And Gift Tax Exemption: Protecting Generational Wealth
Finally, the OBBBA raises the lifetime gift and estate tax exemption to $15 million per individual (or $30 million per married couple) starting in 2026, with annual adjustments for inflation. For high-income business owners committed to leaving a legacy, whether supporting family, philanthropy or both, this could be a game-changer.
With careful estate planning, you can transfer significant wealth without incurring federal estate taxes.
7. More Cash Balance Plan Opportunities
For business owners with a Cash Balance Plan, the new bill may make contributions even more valuable, especially if you’re near the thresholds where other deductions start to phase out. These plans can provide substantial pre-tax contributions, accelerating both retirement savings and current tax savings.
When combining a Cash Balance Plan with a Profit-Sharing Plan, the self-employed business owner could potentially save over $300,000 per year. If you layer this by hiring family members who work for your business, I’ve seen families sock away over a million dollars tax-free each year. This is a great way for business owner to play catch-up on their retirement saving while also lowering their current tax bills.
Bringing It All Together: Why Tax Planning Matters Now
The One Big Beautiful Bill is more than a collection of tax breaks. For high-income earners, it’s a blueprint for building personal wealth, investing in your business and fueling the causes you care about.
Remember: The tax code, especially after OBBBA, is written to benefit business owners, especially those with well-above-average incomes. But simply “filing your taxes” isn’t enough. Strategic, year-round planning, guided by a tax-planning professional who shares your values, can help you leverage these provisions for maximum impact. The opportunity to optimize for both profit and purpose is here. Don’t wait until tax season; start building your strategy today.
