Year-end planning in 2026 looks different from recent years. The One Big Beautiful Bill Act (OBBBA) made several business provisions permanent, added new deductions for workers, and changed information reporting. California, meanwhile, did not follow most of those changes. And the November election settled the billionaire tax question for now. This checklist walks through the decisions California small business owners should make before December 31, 2026, with links to our detailed Briefings on each topic.
As Accounting Today's 2026 year-end planning review puts it, this year brings the usual opportunities plus new issues created by the 2025 legislation and the midterm elections. Here is how those issues line up for an owner in California.
1. Start With the Election Results
Proposition 40, the proposed one-time 5% tax on billionaires' assets, was rejected, and Proposition 42, which bars new state taxes on owning financial assets and other personal property, passed. California income tax, real property tax, and the pass-through entity elective tax (PTET) are unchanged. Read Prop 40 Failed and Prop 42 Passed: What California Business Owners Should Know Now.
2. Map the Federal and California Differences
California's conformity date is now January 1, 2025, and the state did not adopt the OBBBA deductions for tips and overtime, 100% bonus depreciation, the higher Section 179 limits, or the qualified business income deduction. Expect your federal and California numbers to diverge more than usual. See California Does Not Follow the New Federal Tip, Overtime, and Bonus Depreciation Rules.
3. Decide on PTET and the Higher SALT Cap
For 2026, the federal cap on state and local tax deductions is $40,400, reduced for modified adjusted gross income over $505,000, but not below $10,000. Many California owners still do better by having their partnership or S corporation pay the 9.3% PTET. Review The 2026 SALT Cap Is $40,400: When California PTET Still Saves Tax.
4. Get Payroll Reporting Right
2026 Forms W-2 add Box 12 code TP for cash tips and code TT for qualified overtime, and employers must report tipped occupation codes. Payroll systems need to be set up before the final payroll of the year. Read No Tax on Tips and Overtime: What LA Employers Must Put on 2026 W-2s. S corporation owners should also confirm their own wages using S Corporation Reasonable Salary: What to Fix Before the Last 2026 Payroll.
5. Time Equipment Purchases
Federal 100% bonus depreciation is now permanent for qualified property acquired after January 19, 2025, and the 2026 Section 179 limit is $2,560,000, phasing out above $4,090,000 of purchases. The deduction depends on when an asset is placed in service, not when it is ordered. See Place Equipment in Service by December 31 to Use 100% Bonus Depreciation.
6. Protect the QBI Deduction
The 20% qualified business income deduction is now permanent. For 2026, the wage and property limits begin to apply above taxable income of $201,750 for most filers and $403,500 for joint filers. Wages you pay yourself and your staff can raise or lower the deduction. Read QBI Is Permanent in 2026: How S Corporation Wages Affect the Deduction.
7. Review Information Returns for 2026 Payments
For payments made in 2026, the Form 1099-NEC and 1099-MISC reporting threshold rises from $600 to $2,000, and Form 1099-K reporting is back to more than $20,000 and more than 200 transactions. Update vendor files and W-9 collection now. See The 1099-NEC Threshold Is Now $2,000, and 1099-K Is Back at $20,000 and 200 Transactions.
8. Recalculate Estimated Payments
New deductions, a higher SALT cap, and PTET payments all change what you owe. Recheck your remaining installments before the last deadlines of the year in December 15 and January 15 Estimated Tax Deadlines: How to Recalculate Under the 2026 Rules.
9. Recheck Meals and Employee Perks
Starting in 2026, most employers can no longer deduct meals provided for the employer's convenience or as de minimis fringe benefits, while food sold to customers remains fully deductible. Restaurants and offices that provide meals to staff should review New 2026 Meal Deduction Rules: What California Restaurants and Employers Can Still Deduct.
10. Retirement Contributions and Individual Moves
The IRS raised the 2026 401(k) employee deferral limit to $24,500 and the IRA limit to $7,500. Owners age 50 and older can add catch-up contributions. Deferrals made through payroll must be in place before the last pay date, so confirm elections now.
11. Charitable Giving and Gifts
Federal itemizers now face a floor of 0.5% of their contribution base before charitable gifts count, while non-itemizers can deduct up to $1,000 of cash gifts ($2,000 on a joint return), according to the FTB's summary of federal changes. California did not adopt either change. See The New 0.5% Charitable Floor and QCDs: How to Give Before December 31, 2026. For lifetime gifts, the 2026 federal basic exclusion is $15,000,000 and the annual exclusion is $19,000 per recipient under Rev. Proc. 2025-32. Read The 2026 Estate and Gift Exemption Is $15 Million: Year-End Moves for Business Owners.
12. Use Technology, but Keep a Reviewer
AI tools can speed up bookkeeping, but California returns still require judgment on nonconformity items like those above. See AI Can Categorize Your Books. It Cannot File Your California Tax Return.
Key Takeaways
- Model federal and California results separately, because California did not adopt most OBBBA changes.
- Decide on PTET, equipment purchases, and owner wages before December 31, when the options close.
- Set up payroll for the new W-2 tip and overtime codes before the last 2026 payroll.
- Update 1099 thresholds, estimated payments, and charitable plans for the 2026 rules.
If you want a coordinated year-end plan for your business and Individual tax return, schedule a consultation with SMB CPA Group. You can also contact us, learn about our custom scope of work, or review our pricing.
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