As of Summer 2025, California rolled out several new tax laws that significantly impact business owners and individual taxpayers across the state. Whether you’re running a small business in Temecula, managing a startup in San Diego, or operating a corporation in Riverside or San Bernardino, understanding these legislative updates is critical to staying compliant and maximizing your tax planning opportunities.
At The Law Office of Pietro Canestrelli, A.P.C., we serve clients throughout California and across the United States with deep experience in state and federal tax law and business planning. We are committed to helping you interpret and apply these changes to your unique financial situation.
Here’s what you need to know:
Key California Tax Law Changes Effective Summer 2025
1. Suspension of Net Operating Loss (NOL) Deductions
For tax years beginning on or after January 1, 2024, and before January 1, 2027, California has suspended the ability for certain taxpayers to claim NOL deductions.
- Who’s affected: Businesses and individuals with net business income or modified adjusted gross income (MAGI) over $1,000,000.
- Exceptions: Taxpayers with disaster loss carryovers and those under the income threshold.
- Impact: If you were counting on an NOL to offset future gains, this could disrupt your long-term tax planning.
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2. $5 Million Cap on Business Tax Credits
Another major change applies to the use of business tax credits:
- For tax years 2024 through 2026, California has limited the amount of business credits (including carryovers) that can be used to offset state income tax to $5,000,000 per year.
- Certain credits are exempt from the cap, such as the Low-Income Housing Credit and the Pass-Through Entity (PTE) Elective Tax Credit.
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3. Changes to Sales and Use Tax Rates
Effective July 1, 2025, several California jurisdictions experienced sales and use tax rate changes. Businesses must ensure:
- POS systems and accounting software are updated
- Invoicing and compliance procedures align with the new rates
- Local district taxes may now apply in previously unaffected areas
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4. Fuel and Excise Tax Adjustments
California has adjusted its fuel excise tax rates again in mid-2025:
- This affects businesses that manage vehicle fleets or have high transportation costs.
- Industries such as logistics, construction, and agriculture will feel the brunt of these changes.
5. Repeal of Oil & Gas Industry Incentives
California has taken further steps to align with environmental policy goals:
- Eliminated deduction for intangible drilling & development costs
- Repealed percentage depletion for natural resources
- Ended Enhanced Oil Recovery Credit
These repeals apply to tax years beginning January 1, 2024.
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Federal-Level Interactions: The One Big Beautiful Bill Act
Federal changes from the One Big Beautiful Bill Act, passed earlier in 2025, further impact California residents:
1. SALT Deduction Cap Increased
- The cap on the State and Local Tax (SALT) Deduction has been raised to $40,000 for married filers and single filers under certain thresholds (2025–2029).
- California taxpayers with high income or property taxes stand to benefit.
2. Business Income and Depreciation Adjustments
- Adjustments to bonus depreciation schedules and business deductions
- Potential planning opportunities for entity structures and depreciation methods
3. Updated 1099-K Reporting Thresholds
- New thresholds may require more businesses to report third-party payment transactions
- This affects sole proprietors, independent contractors, and ecommerce sellers
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Frequently Asked Questions (FAQs)
How do these changes affect my small business in California?
If you exceed $1M in income or claim large tax credits, these new rules could limit deductions and increase your effective tax rate. Compliance is key to avoid penalties.
What should I do about changing sales tax rates?
Update your systems immediately. Failing to charge the correct rate can lead to underpayment penalties and interest.
Are these changes retroactive?
Most provisions apply to tax years beginning January 1, 2024, so your current 2025 filings are directly impacted.
Can I still claim business tax credits from prior years?
Yes—but only up to $5M annually. It’s important to strategize the use of these credits across multiple years if necessary.
How can I prepare for IRS reporting changes?
Ensure your payment platforms, bookkeeping systems, and contractors/vendors are prepared for increased transparency and IRS scrutiny.
Why Work With a Tax Attorney Now?
The complexity of these overlapping state and federal changes creates a perfect storm for audit exposure and compliance errors. Proactive planning with an experienced tax attorney is more valuable than ever.
At The Law Office of Pietro Canestrelli, A.P.C., we help business owners and individuals navigate California’s evolving tax landscape with confidence. Whether you’re looking for audit defense, strategic business planning, or relief from back taxes, we’re here to guide you.
Protect Your Business Today
Don’t wait until tax season to understand how these laws affect you. Schedule a consultation with The Law Office of Pietro Canestrelli today. Our firm represents clients in Temecula, San Diego, Riverside, San Bernardino, and throughout California.
Contact us today to protect your assets and stay compliant.
