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Don't Assume Federal and California Corporate Tax Laws are the Same

For tax planning, don’t assume California follows Federal corporate tax laws.

Here are 3 main traps that ensnare taxpayers when their California tax returns are filed.

1. Federal law does not allow consolidations of foreign corporations that are parent-subsidiaries. In contrast, California law may require combining foreign parent and foreign subsidiary corporations into one filing even if the foreign corporations have no California operations.

2. California depreciation has never adopted bonus depreciation and California’s corporate Section 179 limit is a measly $25,000.

3. California can disallow deductions for personal services that are not reported on Form 1099 or Form W-2.

There are many other differences between Federal and California tax laws. For a consultation, please contact Richard Pon, CPA.

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Richard Pon CPA, CFP