Senate Bill 132; Signed 6/27/25.

Pass through entity payments (PTE) under AB150 available to partnerships, LLCs and S Corporations were due to expire 12/31/2025. They have been extended through 12/31/2030.

[Note that in the original wording of the One Big Beautiful Bill signed 7/4/25, use of the PTE was to be limited. However, the final version of the OBBB removed that limiting language].

See the article in this section dated 7/28/21 entitled “SALT Limitation Partial Work Around.” Please call if you have additional questions.

Ref: OBBBA signed by President Trump 7/4/2025

States: California does NOT conform to any of these changes. Some states such as Utah and New Mexico have “rolling conformity” and will likely adopt many of these changes. Non-California clients should check their individual state adoption.

Business selected highlights (not all sections of the OBBBA):

1. QBI 20% deduction: Enjoyed by most small businesses since 2017 has been made permanent.
2. Bonus Depreciation: Restores to 100% for property placed in service on or after 1/19/25. This is now permanent.
3. Research & Development: Allows businesses to IMMEDIATELY EXPENSE R&D again. You no longer have to capitalize and amortize these costs. ALSO businesses that have been capitalizing the costs from 2022 through 2024 can elect to accelerate the remaining balance in the capitalized accounts over a one or two year period. (We’ll await regulations on how to accomplish this).
4. 1099-MISC and 1099-NEC: Starting for payments made in 2026, reporting threshold moves from $600 to $2,000.
5. Form 1099-K: Threshold for reporting by third-party services (e.g. Paypal) moves to $20,000 on more than 200 separate transactions.
6. Termination of clean energy credits: Terminates for vehicles purchased after September 30, 2025.

Ref: OBBA signed by President Trump 7/4/25

STATE TAX: California does NOT conform to any of these changes. Some states such as Utah and New Mexico have “rolling conformity” and will likely adopt many of these changes. Non-California clients should check their individual state adoption.

Individual selected highlights:

1. SALT limitation: From 2025 through 2029: New limit of $40,000 reduced for modified adjusted gross income over $500,000.
2. Standard deduction: Starting in 2025: $15,750 single; $23,625 head-of-household and $31,500 married joint.
3. Estate/gift tax exemption: $15 million starting in 2026.
4. 529 plans: Starting 2026: Annual limit on distributions of $20,000 and can be used for elementary or secondary schools in addition to post-secondary.
5. Charitable for those who don’t itemize: Starting in 2026, up to $1,000 ($2k for married) for cash gifts.
6. Tip income deduction: Above the line deduction up to $25k for tips in industry which customarily and regularly receives tips INCLUDING INDEPENDENT CONTRACTORS. Phases out when modified AGI exceeds $150k ($300k married joint). For years 2025 – 2028. UPDATE: The IRS has promised to publish a list of “occupations where tips are traditionally received” by October 2, 2025.
7. Overtime deduction: Up to $12,500 ($25k married) for qualified overtime compensation. Phase out when modified AGI is over $150k ($300k married).
8. Senior deduction: Additional deduction of $6,000 per individual age 65 or over from 2025 – 2028. Phase out when modified AGI is over $75k ($150k joint)
9. US assembled car interest: Deduction up to $10k of interest on us assembled vehicle for years 2025 – 2028. Phased out when modified AGI exceeds $100k ($200k on joint return).
10. Mortgage insurance premiums: Starting in 2026… deductible if itemizing. Phased out for modified AGI over $100k ($50k married filing separate).
11. Termination of Clean Energy Credits: For vehicles purchased after September 30, 2025.

Ref: IRS Tax Tip 2025-04 / Secure 2.0 Act

This IRS is reminding those in the Los Angeles County disaster are that they can:

1. Take up to $22,000 from their retirement without penalty (it will still be taxed)
2. Include that amount in their tax return over three years (up to $7,333 per year) OR
3. Repay the amount to the retirement account over three years.

Who qualifies:

1. Those displaced from their principal residence OR
2. Those who had damage to their principal residence OR
3. Those who lost income due to temporary or permanent layoff

Ref: Federal disaster declared Jan 8, 2025

On January 8, 2025, President Biden signed a major disaster declaration for the Los Angeles County wildfires.

If you experience a loss (after insurance settlement) you can claim a casualty loss on BOTH your federal and California returns. This is a complex calculation. Clients effected should contact us for more information. [Note that casualty losses NOT in a federal disaster area can be claimed only on the California return under current tax law].

Ref: Corporate Transparency Act

NEW DEADLINE IS JANUARY 13, 2025 (The Court injunction has been lifted).

THIS IS A NEW LEGAL REQUIREMENT EFFECTIVE 1/1/2024. [We bring it to your attention as a client service and strongly suggest you contact your business attorney or a paralegal reporting service].

Who is effected: Virtually ALL corporations, LLCs and partnerships.

When: Due date is Jan 13, 2025 for all entities in existence prior to 2024. New entities within 30 days of formation. Changes: Within 30 days of the change.

What: Information for all control employees of ALL entities includes full name, residential address, identification information (including a pdf of drivers license or passport).

How: You or your attorney will report through fincen.gov/boi

Example I: Small corp is owned by three shareholders A(50%), B(40%) and C(10%). Also John Smith is President, but not a shareholder. Information would be reported for all over 25% and John as an officer.

Example II: Small LLC is owned 50% each by partnership A and B. Both partnership A and B are owned 50% each by John, Susie, Sam and Christy. Since each of the individuals is the 25% beneficial owner of Small LLC, it will report all four. Also, both partnership A and B will report two partners each respectively.

Penalties: Are SEVERE: $500 per day and up to two years in prison.

AGAIN, THIS IS A LEGAL REQUIREMENT AND NOT PART OF YOUR INCOME TAX RETURN. AS WE ARE NOT A LAW FIRM, WE DON’T OFFER THIS REPORTING SERVICE. You can either report yourself or through your attorney / paralegal.

IRS Notice 2024-85

The IRS is providing transition relief for third-party settlement organizations (TPSOs), also known as payment apps and online marketplaces (e.g., Venmo, Amazon, etc.), regarding transactions during calendar years 2024 and 2025.

According to the IRS’s latest guidance, TPSOs must file 1099-Ks to report transactions when the amount of total payments for those transactions is more than:

• $5,000 in 2024; 
• $2,500 in 2025; and 
• $600 in calendar year 2026 and after.

Client suggestion: Be sure that your business Venmo, Amazon, Zelle, Applepay etc are used ONLY for business transactions. If you receive a Form 1099-K with personal amounts (e.g. your kids reimburse you for vacation money), it’s important that you present it so we can reconcile it on your individual return.

We predict that this will cause a HUGE MESS for the filing period starting January 2024. IRS.gov states that if in error, you should contact the issuing company (e.g. Venmo) and have them correct it… but with millions of potential errors, they are not likely to do so.

IRS.gov has instructions if you can’t get the Form 1099-K corrected:

1. Enter the incorrect amount as “other income” on line 8z of Form 1040.
2. Enter the offsetting amount as “other adjustments” on line 24z of Form 1040
3. The two amounts will offset and the computer will locate the original amount.

Ref: IRS Issue IR-2024-289

Individuals age 70 1/2 and older can make IRA distributions to qualified charities without counting the distribution in taxable income. In prior years, the total was limited to $100,000 per year. That amount in 2024 has risen to $105,000. That amount is $108,000 for 2025.

Married individuals: Each IRA owner, if qualified, can make a QCD from his/her IRA for a maximum total of $210,000.

These are referred to as qualified charitable distributions (QCD).

For those age 73 and older, these do count towards your required minimum distributions.

Ref: IRC Subchapter S

Profitable S corporations MUST pay a reasonable W2 wage to it’s shareholder/officer(s). If this is not paid, this is a LARGE AUDIT FLAG. Many of these audits are now chosen through AI, comparing net income to the Officer Compensation reported on Line 7 of Form 1120-S. This is an easy test to perform.

Reasonable compensation takes into consideration the duties of the officer shareholder as well as the location of the business. There are many online salary surveys (e.g. Indeed) listing salary ranges by location and industry. These can serve as guidance.

IF AUDITED: The IRS will look at salary level and compare to reasonable surveys. If too low, the IRS will recharacterize some shareholder distributions as wages and assess FICA/Medicare taxes (currently at 15.3%) as well as FUTA tax on the shortfall. This amount may also be assessed interest and penalties.

COMMON PAYMASTER: If there are multiple S corporations commonly owned (e.g. three S corporations owned 100% by the same individual), then payroll can be paid by only one of them under the rules in IRC Sec 3121(s) and Section 3306(p). Also see Reg Secion 31-3121(s)-1. This treatment will save both in time devoted to multiple wage report preparation as well as overpayment (e.g. paying FUTA tax multiple times for the same employee).

If you have questions on the above, please contact us.

Ref: IRS Notice 2024-68

The IRS has published this notice superseding Notice 2023-68 (published appx a year ago).

Per diem rates are used when traveling away-from-home for business in lieu of using actual receipts. The following don’t include special rates for the transportation industry. [You must maintain records such as a calendar substantiating your away-from-home business days].

High cost localities include: Los Angeles, Ventura, Orange, Santa Barbara, San Francisco and San Diego Counties. A full listing is included in Notice 2024-68 including locations outside of California.

High cost cities travel per diem: $319; meals only per diem $86.

Low cost cities travel per diem: $225; meals only per diem $74

EFFECTIVE DATE OCTOBER 1, 2024.