Flat-Fee Tax Preparation for California Residents

California does not conform to federal 100% bonus depreciation — assets must be depreciated over their regular MACRS life on the CA return

The CA PTET (Pass-Through Entity Tax) election allows S-corps and partnerships to pay a 9.3% entity-level tax, bypassing the federal $10K SALT cap

California taxes capital gains as ordinary income — there is no preferential long-term capital gains rate at the state level

LLCs and LPs owe an annual $800 minimum franchise tax plus a gross receipts fee: $900 for $250K–$499K revenue, scaling to $11,790 for revenue over $5M

The CA Franchise Tax Board (FTB) has aggressive audit and collection practices, including intercepting federal refunds and placing liens

Part-year residents and those leaving CA face scrutiny over domicile — CA will assert residency and tax worldwide income if ties to CA remain strong (the 'exit tax' issue)

SDI (State Disability Insurance) wages paid by employees are deductible as a state income tax on Schedule A — often missed

CA does not recognize S-corporation status for tax purposes in the same way as federal — CA S-corps owe a 1.5% franchise tax on net income (minimum $800)

California Real Estate Tax

California's real estate market is one of the most valuable in the nation, with significant implications for investors. Prop 13 limits annual property tax increases to 2% until sale, making long-held properties extremely tax-efficient — but a sale triggers full reassessment. 1031 exchanges are popular among CA investors but must also comply with CA's clawback provisions if replacement property is out-of-state.

California Business Tax

California has one of the most complex business tax environments in the US. In addition to personal income tax rates reaching 13.3%, businesses face the LLC gross receipts fee, a potential 1.5% S-corp franchise tax, and mandatory EDD payroll registration requirements. The CA PTET election enacted in 2021 is now the single most valuable planning tool for pass-through business owners subject to the SALT cap.

Do I have to file a California state tax return?

If you are a CA resident, part-year resident, or earned CA-source income, you must file a CA return. CA taxes its residents on worldwide income. Part-year residents are taxed on all income earned while a resident plus any CA-source income earned as a non-resident. The FTB is aggressive about asserting residency even after you move — strong documentation of your domicile change is essential.

Is the CA PTET election worth it for my S-corp or partnership?

For most CA pass-through owners subject to the $10K federal SALT cap, the PTET election is highly valuable. You pay a 9.3% entity-level tax on California qualified net income, which is fully deductible as a business expense on your federal return — effectively unlocking an unlimited federal deduction for CA state taxes. The election must be made by the original due date of the return, and estimated payments must be made correctly to avoid penalties.

How does California treat 1031 exchanges?

CA recognizes 1031 exchanges on the same basis as federal — you can defer capital gains by exchanging into like-kind property. However, CA has a clawback provision: if you exchange out of CA property into out-of-state replacement property and later sell the replacement property without paying CA tax, the FTB may assess CA tax on the deferred gain. CA requires you to file an annual information return (FTB 3840) to track deferred gain from out-of-state exchanges.

Does California tax remote workers who moved out of state?

If you worked remotely for a CA employer while physically located outside CA, only income earned while physically in CA is CA-source income. However, if you are a CA domiciliary (your permanent home is still CA), CA taxes your worldwide income. Establishing a new domicile requires more than just renting an apartment elsewhere — you need to move your center of life, including voter registration, driver's license, vehicle registration, and primary bank accounts.