Navigating the Divide: California’s Key Non-Conformity Pitfalls Under the One Big Beautiful Bill Act (OBBBA)
At Brave New Wealth, our focus is on strategically navigating tax complexities. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, introduces sweeping federal tax changes—none of which California automatically adopts due to its static 2015 conformity date. The result: freshly emerged “gotchas” that demand attention for both compliance and planning.
California’s Static Conformity Principle: The Root of Divergence
California's adherence to static conformity means it does not automatically adopt federal tax code updates. Since California’s conformity date remains January 1, 2015, the sweeping changes introduced by OBBBA are not recognized in California unless specifically adopted by state legislation.
Critical Non-Conformity "Gotchas" Under OBBBA
Here are the primary areas where taxpayers must be especially vigilant:
Permanent Bonus Depreciation
Federal: OBBBA makes 100% first-year bonus depreciation permanent.
California Gotcha: California remains non-conforming—no bonus depreciation allowed. Businesses must maintain dual depreciation schedules for federal vs. California purposes.
Research & Development (R&D) Expensing
Federal: OBBBA restores immediate expensing post‑2024 and retroactive relief for prior capitalized amounts.
California Gotcha: While California always allowed immediate expensing, it does not conform to the retroactive relief—state taxpayers miss out on the federal catch-up benefit.
Business Interest Expense Limitation (§163(j))
Federal: OBBBA reinstates a more favorable EBITDA standard for calculating interest deductions.
California Gotcha: California remains fully decoupled from §163(j). Interest deductions remain unrestricted at the state level but require distinct tracking from federal.
Qualified Business Income (QBI) Deduction (§199A)
Federal: OBBBA permanently secures the 20% QBI deduction and expands thresholds.
California Gotcha: California still disallows QBI deductions entirely—pass-through businesses face higher effective state taxes.
Health Savings Accounts (HSAs)
Federal: Contributions and earnings are tax-deductible and tax-free.
California Gotcha: California does not conform to HSA provisions. Contributions (including employer-paid), earnings, and distributions lose their tax-exempt status, requiring annual add-back to CA income.
529 Plan Withdrawals for K–12 Expenses
Federal: OBBBA expands qualified K–12 expenses immediately and increases the maximum annual withdrawal to $20,000 starting in 2026.
California Gotcha: California does not conform—K–12 withdrawals remain taxable and may trigger penalties. Families must anticipate reporting complexities and plan accordingly.
Navigating Strategic Complexity
Understanding these key "gotchas" isn't merely compliance—it’s essential for strategic tax planning. Differences around depreciation, R&D expensing, entity selection, HSAs, and 529 plans present both challenges and opportunities:
Businesses must meticulously maintain separate depreciation and R&D asset schedules.
Entities must critically evaluate structure choices considering California's non-conformity to QBI.
Individuals must proactively manage HSA tax reporting and carefully strategize 529 plan withdrawals.
Stay Vigilant, Stay Strategic
At Brave New Wealth, we emphasize proactive and informed navigation through complex tax landscapes. By identifying these specific non-conformity “gotchas” under OBBBA, you can pivot complexity into competitive advantage—ensuring proactive compliance and strategic financial outcomes.
Welcome to Brave New Wealth
It all begins with an idea.
At Brave New Wealth, we believe true wealth isn't simply accumulated—it's intentionally designed and boldly lived.
The financial industry often defines wealth solely in numbers, asset balances, and portfolio returns. But through my nearly two-decade career advising clients, I’ve seen clearly: numbers alone never tell the full story. Your dreams, your values, your courage, and your vision for life—these are the threads that weave together a genuinely wealthy life.
This realization led me to create Brave New Wealth.
Why Brave New Wealth Exists
We live in an era saturated with generic financial advice and cookie-cutter portfolios. Financial plans are often templated solutions that fail to capture the richness and uniqueness of your story. I founded Brave New Wealth because I knew there was a better way—a more human, deeply personalized, and strategically robust way to guide clients toward their boldest visions.
At Brave New Wealth, every strategy is custom-crafted. We take the time to deeply understand your values, your purpose, and your ambitions. Our work goes beyond generic advice—it's innovative, rigorous, and tailored to precisely reflect the life you want to create.
Our Approach: Purpose, Precision, and Innovation
We blend thoughtful innovation with time-tested principles, combining cutting-edge financial technology and sophisticated private market and impact investing strategies. Our approach provides you with clarity, alignment, and empowerment around every decision.
When you work with Brave New Wealth, you can expect:
Personalized strategies tailored specifically for you, leveraging the industry's best analytical tools.
Creative solutions including private market access, innovative lending, and curated impact investments aligned with your values.
Rigorous planning that blends investment strategies, tax optimization, estate considerations, and personalized advice.
Your Brave New Journey: What to Expect
Your journey with Brave New Wealth will look different. Our signature process follows five carefully designed steps:
Discovery: Understanding your story, your values, your ambitions.
Clarify + Explore: Untangling complexity and identifying your true financial priorities.
Design Your Wealth Life: Crafting a deeply intentional, customized financial roadmap.
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Reflect + Evolve: Ensuring your financial life remains aligned with your evolving goals.
A Brave Invitation
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We invite you to begin a new conversation around wealth—one centered on meaning, intentionality, and bold vision.
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About the Author:
Brian Canning, CFP®, AIFA®
Founder of Brave New Wealth
Brian founded Brave New Wealth after 17 years in the financial industry, including 13 years at a values aligned independent registered investment advisor, to redefine the experience of wealth management. Through deep listening, strategic planning, and innovative financial strategies, he guides clients toward living boldly intentional lives.