California corporate tax is 8.84% (minimum $800 franchise tax for all LLCs). Does NOT conform to federal bonus depreciation.
Key Planning Insight:
California taxes capital gains as ordinary income at up to 13.3% — the highest in the nation. The PTET election (extended through 2030) is critical for pass-through owners to work around the SALT cap. Bonus depreciation must be added back on the state return.
California-Specific Tax Strategies
These strategies are especially powerful or unique in California. Click any strategy to learn more.
California's PTET election (AB 150) allows qualified entities to pay a 9.3% tax at the entity level. Owners receive a corresponding credit on their individual returns. Given California's 13.3% top rate, this is one of the most valuable PTET elections in the country.
The Qualified Small Business Stock (QSBS) exclusion under IRC §1202 allows founders and early investors to exclude up to 100% of capital gains (up to $10M or 10x basis) when selling stock in a qualifying C-Corp held for 5+ years. This is one of the most powerful tax benefits available to startup founders and angel investors.
A cost segregation study reclassifies components of commercial or rental property into shorter depreciation categories — accelerating deductions from 27.5 or 39 years down to 5, 7, or 15 years. Combined with bonus depreciation, this can generate massive first-year deductions on real estate investments.
Qualified Opportunity Zone (QOZ) investments allow you to defer and reduce capital gains taxes by investing in designated economically distressed areas. Gains invested in a Qualified Opportunity Fund (QOF) are deferred until 2026, and if held 10+ years, any appreciation on the QOZ investment is tax-free.
The R&D Tax Credit (IRC §41) provides a dollar-for-dollar reduction in federal tax liability for qualified research activities. Small businesses can apply up to $500,000/year against payroll taxes. Qualifying activities include developing new products, improving processes, and creating software.
California's 13.3% top income tax rate makes residency planning critical for high earners. Strategies include establishing domicile in a no-tax state, the "safe harbor" rules for part-year residents, and careful documentation of physical presence days. California's Franchise Tax Board aggressively audits residency changes.
Choosing the right business structure is the single biggest tax decision you'll make. Here's what California LLC and S-Corp owners need to know.
California LLC Formation
California LLCs are taxed as pass-through entities by default. All profits flow to your personal return and are taxed at 13.3%. Electing S-Corp status can significantly reduce your self-employment tax burden.
LLC vs. S-Corp in California
California offers a Pass-Through Entity Tax (PTET) election — a major advantage for LLC and S-Corp owners. By paying state income tax at the entity level, you bypass the $10,000 federal SALT deduction cap and deduct the full state tax bill on your federal return.
Top LLC Write-Offs in California
California LLC owners can deduct: business expenses (IRC §162), home office (IRC §280A), vehicle mileage (IRC §179), Section 179 equipment expensing, retirement contributions (Solo 401k or SEP-IRA), health insurance premiums, and business meals. Note: California does not conform to federal bonus depreciation — an add-back on your state return may be required.
California Business Tax Note
California corporate tax is 8.84% (minimum $800 franchise tax for all LLCs). Does NOT conform to federal bonus depreciation.
These federal strategies apply to California residents and business owners. Click any strategy to see full details, savings estimates, and eligibility requirements.
Common questions about California LLC taxes, S-Corp elections, and business write-offs — answered by Uncle Kam's tax advisors.
California's top marginal income tax rate is 13.3%. Business owners and self-employed individuals pay this rate on their net business income. Strategies like the S-Corp election, pass-through entity tax (PTET) election, and maximizing deductions can significantly reduce your effective California tax rate.
The most powerful write-offs for California LLC owners include: the S-Corp election to reduce self-employment taxes, Section 179 and bonus depreciation for equipment and real estate, the home office deduction, vehicle and mileage deductions, Solo 401(k) or SEP-IRA contributions, and business meals and travel. California-specific strategies like the PTET election and state-specific credits can add further savings.
Yes. California offers a pass-through entity tax election that allows S-Corps and partnerships to pay state income tax at the entity level. This is a powerful SALT workaround that lets business owners deduct state taxes on their federal return, bypassing the $10,000 SALT cap. Uncle Kam's tax advisors can help you determine if the California PTET election is right for your business.
California does not fully conform to federal bonus depreciation rules. You may need to add back bonus depreciation on your California state return and depreciate assets over a longer schedule. However, Section 179 expensing may still be available up to California's state cap. A tax advisor can help you navigate this.
For most California business owners earning over $60,000 in net profit, electing S-Corp status can save $5,000–$20,000 per year in self-employment taxes. The right choice depends on your income level, California's franchise or minimum tax requirements, and your business structure. Uncle Kam's advisors specialize in California entity structuring — book a free call to get a personalized recommendation.
Self-employed individuals in California can reduce state taxes by: maximizing business deductions (home office, vehicle, equipment), contributing to a Solo 401(k) or SEP-IRA, electing S-Corp status to reduce self-employment tax, using the PTET election if available, and timing income and deductions strategically. A California-based tax strategy session with Uncle Kam can identify your biggest opportunities.
Real estate investors in California benefit most from cost segregation studies (accelerating depreciation on commercial and rental properties), the 1031 exchange (deferring capital gains on property sales), bonus depreciation (if California conforms), the short-term rental loophole, and real estate professional status (REPS). California's specific tax rules can significantly impact your real estate ROI — get a free strategy review from Uncle Kam.
