Quick Answer
California state tax law departs from federal tax law in four key areas: (1) CA non-conformity with TCJA provisions — SALT, QBI, bonus depreciation; (2) CA-specific credits and deductions not on federal returns; (3) different treatment of certain entity types and elections; and (4) CA-specific passive activity and basis rules. The short version is that CA historically conforms to federal but with significant carve-outs. In our experience, practitioners trained only on federal miss CA-specific differences, creating filing errors.1
CA-federal conflict question? A 15-minute consultation is free.
Four areas of CA-federal tax conflict.
The Four CA-Federal Conflict Areas
| Area | Difference2 |
|---|---|
| TCJA Non-Conformity | SALT cap, QBI, bonus deprec. |
| CA Credits | Renter's credit, others |
| Entity Treatment | LLC vs. corp tax |
| Basis / Passive | CA-specific adjustments |
1. TCJA Non-Conformity
CA didn't conform to many 2017 TCJA changes.
If this is you: Federal return with TCJA items. CA may not allow QBI deduction, may not conform to bonus depreciation, different SALT treatment. Adjustments on Schedule CA.
TCJA Non-Conformity Strategy
- Identify TCJA items on federal.
- Check CA conformity status.
- Make Schedule CA adjustments.
- Document differences.
- Track multi-year effects.
2. CA-Specific Credits
CA renter's credit, research credit variations, others.
If this is you: CA taxpayer. CA-specific credits not on federal. Research credit calculation differences. Competitive credits for businesses.
3. Entity Treatment Differences
LLC gross receipts fee, S-corp 1.5% tax, other entity differences.
If this is you: Business entity. CA LLC pays gross receipts fee (up to $11,790). CA S-corp pays 1.5% entity-level tax. Federal treats differently.
4. Basis and Passive Activity
CA-specific basis and PAL adjustments.
If this is you: Passive investor or shareholder. CA basis may differ from federal. Passive activity losses tracked separately. Multi-year reconciliation required.
CA-federal conflict? Book consultation.
CA-Federal Lookup
| Area | CA Authority |
|---|---|
| Conformity / Non-conformity | CA RTC + FTB guidance |
| Schedule CA | Federal/CA adjustments |
| CA credits | FTB Publication 1001 |
| CA entity tax | RTC §23802 (S-corp 1.5%) |
| LLC fee | RTC §17942 |
CA-Federal Statute
- CA FTB: 4-year statute.
- Federal changes trigger CA amended returns.
- 90-day window for reporting federal changes.
CA-Federal Patterns
| Situation | Outcome |
|---|---|
| Proper Schedule CA | Clean reporting |
| Federal-only preparer | Filing errors |
| Federal audit adjustments | CA amendment required |
| Non-conformity missed | CA underpayment |
CA-Federal Audit
Federal Adjustments
Reported to FTB within 90 days.
CA Amendment
Schedule CA changes.
Assessment
CA back-tax if applicable.
First 48 Hours
- Review prior CA returns.
- Identify non-conformity items.
- Check Schedule CA adjustments.
- Reconcile to federal.
- Engage CA specialist.
The ROI Question
Proper CA-federal reconciliation saves significant tax. Professional CA-specific review pays for itself.
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When to Engage
- Complex CA-federal differences.
- Federal audit affecting CA.
- Non-CA-specialist preparer.
- Multi-year amendments.
Frequently Asked Questions
How does CA differ from federal?
Four major areas — TCJA non-conformity (QBI, SALT, bonus depreciation), CA-specific credits, different entity tax treatment, and basis / passive activity differences.
What is CA TCJA non-conformity?
CA didn't adopt many 2017 TCJA provisions. No QBI deduction for CA. Different SALT treatment. Modified bonus depreciation. Schedule CA adjusts.
Does CA allow QBI deduction?
No. QBI deduction (IRC §199A) not allowed on CA return. Add back on Schedule CA.
What about CA S-corp tax?
1.5% CA franchise tax on S-corp income. Plus $800 minimum. Federal treats as pass-through with no entity tax.
What's CA LLC fee?
Graduated gross receipts fee from $0 to $11,790 based on CA-sourced gross receipts. In addition to $800 minimum tax.
Does bonus depreciation apply in CA?
CA modified conformity. No 100% bonus. MACRS standard. Schedule CA adjustment.
What CA-specific credits exist?
Renter's credit, child / dependent care, research credit (CA formula), competitive business credits. Many CA-only.
Do I need separate CA basis?
Often yes. CA non-conformity creates separate basis tracking. Especially for depreciable property and S-corp / partnership interests.
What about passive losses?
CA tracks separately. PAL suspended losses may differ from federal. Multi-year tracking required.
Does federal audit affect CA?
Yes. Report federal changes to FTB within 90 days. CA amended return typically required.
Does CA conform to new federal laws?
Selective conformity. Each major federal change evaluated. CA legislature adopts piecemeal. Check current CA conformity.
What if preparer only knows federal?
Risk of CA filing errors. CA-specific review recommended. Complex situations warrant CA specialist.
How to reconcile CA-federal?
Schedule CA adjusts federal AGI / itemized deductions to CA amounts. Each non-conformity item addressed.
Next Steps
CA-federal conflict? 15-min consultation free.