California business leaders must remain nimble in response to fluctuating economic conditions and tax policy changes — and Los Angeles businesses are nothing if not adaptable.

Wildfire disasters earlier this year and new business regulations have put many California businesses at risk. Various federal and state tax policies have also increased operational burdens. However, other policies have provided welcome tax incentives. Disaster-related deductions and tax filing extensions have also offered reprieve to business owners.

California leaders can properly strategize for the future by understanding the tax implications of recent and proposed policies.

 

IMPLICATIONS OF RECENT TAX POLICY CHANGES

Amidst federal policy overhauls and resulting court orders, the following changes and proposed policies should be closely monitored: 

  • California tax concerns: Proposals for individual tax rate increases and new tax regimes like the wealth tax could make it more expensive to do business in SoCal. Proposals for broadening the tax base to include sourcing rules for income and sales tax on additional products/services may also contribute to deterring economic growth.
  • Rescinded federal grants: Federal proposals to reduce research grants — including more than $2.6 billion in National Institutes of Health funding previously awarded to the University of California — could limit resources for universities, healthcare organizations and nonprofits. As a result, some organizations are implementing hiring freezes to reduce short-term costs.
  • Domestic manufacturing: The administration is prioritizing U.S. manufacturing with tariffs that will likely impact manufacturers, suppliers and importers. Additionally, a proposed Senate bill would allow for an auto loan interest deduction on American-made cars.
  • No tax on tips or overtime: This House bill, backed by President Trump, pushes for changes in employee pay arrangements. This would benefit industries relying on tips and overtime, such as hospitality — which represents a major employment sector in Los Angeles.
  • Proposed corporate rate cuts: President Trump campaigned on dropping the corporate tax rate to 15% for companies manufacturing in the U.S., which would likely influence entity structure decisions, especially if the changes are substantial. 

 

TAX INCENTIVES FOR CALIFORNIA BUSINESS GROWTH 

State incentives:

  • Wildfire recovery: Wildfire recovery bills provide $2.5 billion in disaster relief.
  • Property tax relief: Based on existing property tax relief laws concerning valuation, this allows property owners to request a reappraisal of their property to reflect its damaged state. Without action, the property could be appraised at the same value as before the fires.
  • LA business tax relief: This allows impacted business to avoid 2025 business tax and renewals for this year if currently not in operation due to wildfire impacts. Further, annual exemptions from the business tax for small businesses, creative artists and nonprofits remain available.

Other incentives:

  • Research and development: Available both at the federal and state level, these credits incentivize businesses to invest in new products or improvements.

Proposed incentives:

  • Tax credits for wildfire mitigation expenses: The federal SAFE HOME Act would create a 25% refundable credit for wildfire mitigation. California’s SB 269 would provide other tax credits to eligible homeowners that make specific wildfire prevention improvements to their houses. 

  • Increased film credit: California's Film Tax Credit is designed to keep entertainment industry productions in state. The 2025-2026 budget proposes a higher cap ($750 million per year) on tax credits.

     

STEPS TO TAKE NOW

In federally declared disaster areas, companies may be eligible to deduct disaster-related losses on the previous year's tax return. A tax advisor can help determine which tax year is more advantageous to deduct disaster-related losses based on a company's taxable position. 

Extended payment and filing deadlines are also in effect in some impacted areas. For instance, LA County received a tax extension until October 15, 2025 for both federal and California 2024 tax returns. Some zip codes may also qualify for extended property tax deadlines. 

And lastly, be sure to file claims with any business insurance policies, such as business interruption insurance or property insurance with replacement cost coverage.

 

TAX PLANNING DRIVES BUSINESS GROWTH 

Tax policies will undoubtedly continue to shift, and uncontrollable factors, like wildfires, are always a potential threat to business owners and individuals. Staying informed on tax policy developments and proactive tax planning are integral parts of driving business growth and maintaining financial resiliency.

This article first appeared in the Los Angeles Business Journal.