2026 Client newsletter
2025–2026 Tax Law Updates
Federal & California Overview for Individuals and Businesses
In July 2025, Congress enacted the One Big, Beautiful Bill Act (OBBBA). The legislation permanently extended several provisions of the Tax Cuts and Jobs Act (TCJA), modified business and international tax rules, and accelerated the repeal of certain energy-related tax incentives.
California reminder: California generally conforms to the Internal Revenue Code as of January 1, 2025. Because OBBBA was enacted after that date, California does not automatically conform to most of its provisions. As a result, federal and California tax outcomes may differ.
Key Filing Deadlines — 2025 Tax Year
Individuals
- Federal & California filing deadline: April 15, 2026
- A six-month extension is available; any tax due must still be paid by April 15
Businesses (Calendar-Year Entities)
- Partnerships (Form 1065): March 16, 2026
- S Corporations (Form 1120-S): March 16, 2026
- C Corporations (Form 1120): April 15, 2026
Individual Tax Updates
Federal Standard Deduction — Tax Year 2025
The federal standard deduction continues to increase with inflation.
| Filing Status | 2025 Standard Deduction |
|---|---|
| Single | $15,750 |
| Married Filing Separately | $15,750 |
| Head of Household | $23,625 |
| Married Filing Jointly | $31,500 |
| Qualifying Surviving Spouse | $31,500 |
California uses separate standard deduction amounts, which are generally lower than federal levels.
Personal Exemptions & Senior Deduction
- Federal personal exemptions remain eliminated
- A temporary enhanced deduction for seniors is available:
- Up to $6,000 per spouse age 65 or older
- Applies for tax years 2025 through 2028
- Personal exemption amounts continue to apply for dependency tests and certain credit calculations
Child Tax Credit
- Up to $2,200 per qualifying child
- Refundable portion up to $1,700 per child
- $500 credit for other dependents remains available
- Income phase-outs apply for higher-income households
California does not fully conform to the federal Child Tax Credit and applies its own child-related credits.
Child & Dependent Care Credit
- Qualifying expenses:
- $3,000 for one qualifying dependent
- $6,000 for two or more qualifying dependents
- Credit percentage ranges from 20% to 35%, based on income
- Maximum federal credit generally up to $2,100
California offers a separate dependent care credit with different limits and income thresholds.
State and Local Tax (SALT) Deduction
- OBBBA expanded the federal SALT deduction cap
- California does not conform to the federal SALT limitation or expansion
- Passthrough Entity Tax (PTE) elections remain an important planning tool for California business owners
Clean Vehicle & Energy Credits — Individuals
- Clean Vehicle Credit repealed for vehicles acquired after September 30, 2025
- Residential solar credit repealed for expenditures after December 31, 2025
- Energy-efficient home improvement credits repealed after 2025
Business Tax Updates
Depreciation & Capital Investment
- Bonus depreciation and §179 expensing continue at the federal level
- California decouples from many federal depreciation provisions
Research & Development (R&D)
- Updated capitalization and amortization rules remain in effect
- Separate federal and California tracking is often required
Passthrough Entities
- Federal SALT expansion increases the value of PTE elections
- California’s PTE tax continues under separate rules and limitations
Energy Credits — Businesses
- Commercial clean vehicle credits end after September 30, 2025
- Energy-efficient commercial building deduction repealed for projects beginning after June 30, 2026
- Wind and solar credits are phased out subject to construction-start requirements
This information is provided for general educational purposes only and should not be considered tax advice. Tax outcomes depend on individual facts and circumstances.