Member of Russell Bedford International, a global network of independent professional service firms.
Member of Russell Bedford International, a global network of independent professional service firms.
CPA | Tax Manager
As the ink dries on the One Big Beautiful Bill Act (OBBBA), many taxpayers are wondering: What does this mean for me, my business and my bottom line?
While much of the discussion focuses on federal tax changes, state tax laws are also affected. State legislators must decide whether to align to the new federal rules. It’s unknown how quickly state legislators will respond to the changes. Because of this, taxpayers could see difference in how their income, deductions and credits are treated from state to state.
Here’s a breakdown of the key areas where OBBBA could impact state taxes and what you should watch for.
The state tax deduction (SALT) cap, originally limited to $10,000 under the Tax Cuts and Jobs Act of 2017 (TCJA), has been increased under OBBBA to $40,000 for joint filers and $20,000 for certain individuals.
In response to the old cap, 36 states enacted a Pass-Through Entity Tax (PTET), where flow through entities were allowed to pay state tax on behalf of owners and deduct them as business expenses.
Now that the SALT limit has increased, some business owners may want to reconsider PTET elections. Additionally, some state PTET provisions are set to expire at the end of 2025, and it’s unclear which states will extend the PTET.
What this means for you: If you currently use or are considering a PTET election, it’s a good time to re-evaluate your strategy with your tax advisor.
Under TCJA, bonus depreciation, which allows businesses to deduct the full cost of qualifying assets, has been phasing out from 100% down to 40% in 2025, and ultimately to zero in 2027. The OBBBA reverses this trend by reinstating 100% bonus depreciation for assets acquired after January19, 2025.
However, many states do not allow this deduction. Businesses will need to continue to track state differences in depreciation rules to avoid surprises when filing state returns.
What this means for you: Be aware that even though you may get the full deduction at the federal level, your state may not conform.
Beginning in 2025, the limitation on business interest expense will be expanded to apply to EBITDA (earnings before interest, taxes, depreciation and amortization).
Because each state chooses whether to follow the federal rule (Section 163(j)), conformity varies widely. This means your allowable interest deductions may differ by state.
What this means for you: Businesses with multi-state operations should carefully review where and how these new limitations apply.
The OBBBA reinstitutes immediate expensing of R&E costs. It also allows for accelerated deductions for costs that were capitalized between 2022-2024.
Since each state handles R&E costs differently, you’ll need to identify which states plan to conform to the new rules beginning in 2025.
What this means for you: If your business invests in research or development, this change could offer significant tax savings, but only if your state follows the new federal approach.
Each state decides whether to adopt federal tax changes, ignore them or modify them. This can be overwhelming for business owners, especially those operating in multiple states.
Analyzing these differences can be complex and time-consuming, but it’s crucial to ensure accurate tax filings and avoid penalties.
Navigating federal and state tax changes under the One Big Beautiful Bil Act doesn’t have to be overwhelming. The team at Cray Kaiser can help you analyze the effect on your business. Although we usually start looking at year-end tax planning in Q4, now is the time to talk with your advisor about the impact of the bill on your state taxes. Contact Cray Kaiser and learn how these changes may impact your bottom line.
