A California Tax Guide for Individuals & Small Businesses

California Income Tax

California has a graduated state income tax with nine brackets running from 1% to 12.3%. On top of that, a 1% Behavioral Health Services Tax applies to taxable income above $1,000,000, which puts the top marginal rate at 13.3% — the highest state income tax rate in the country.

Bracket thresholds are adjusted for inflation each year, so check current figures before planning around them. The 2026 standard deduction is $5,706 for single filers and $11,412 for married couples filing jointly — far below the federal standard deduction, which is why many Californians itemize on their state return even when they take the standard deduction federally.

One thing that catches new arrivals off guard: California gives no preferential rate to long-term capital gains. Gains are taxed as ordinary income at your full marginal rate, so a stock sale or a business exit can land in the top bracket.

The good news is there’s no county or city income tax in California. Your state return is the whole state-level picture.

California Property Taxes: Prop 13 & Prop 19

Proposition 13 caps the base property tax rate at 1% of assessed value and limits annual increases in assessed value to 2% or the rate of inflation, whichever is lower. Because assessed value resets to market value when a property sells, two identical homes on the same street can carry very different tax bills depending on when each was bought.

Proposition 19 changed what happens when property passes to children. The parent-to-child exclusion now applies only to a primary residence that the child also makes their primary residence, and only up to a value cap — $1,044,586 for transfers between February 16, 2025 and February 15, 2027. Vacation homes, rentals, and commercial property no longer qualify at all.

Prop 19 also expanded transfers the other direction: homeowners who are 55 or older, severely disabled, or affected by a wildfire or natural disaster can move their base year value to a replacement home anywhere in California, up to three times.

California Sales Tax

California’s statewide base sales tax rate is 7.25%, the highest state-level base rate in the country. Cities and special districts add on top of it, so what you actually pay depends on where the sale happens. In the City of San Diego the combined rate is 7.75%, and several other cities in San Diego County run higher.

Groceries and prescription medication are exempt. Prepared food, restaurant meals, and most services are not.

California Small Business Considerations

If you run an LLC in California, budget for the $800 annual franchise tax. It is owed every year regardless of profit — even if the business lost money or had no activity at all.

Once total California income reaches $250,000, a gross-receipts fee stacks on top of the $800: $900 at $250,000, $2,500 at $500,000, $6,000 at $1 million, and $11,790 at $5 million and above. This one surprises a lot of owners, because it is based on gross receipts rather than profit.

California also offers an elective pass-through entity (PTE) tax, which lets S-corps and partnerships pay state tax at the entity level at 9.3% and generate a federal deduction that the SALT cap would otherwise limit. The election had been scheduled to expire after 2025 but was extended through the 2030 tax year. Whether it still pencils out depends on your income — the federal SALT cap rose to $40,000 in 2025, which narrows the benefit for some owners.

Estimated payments are another California quirk. The state front-loads them rather than spreading them evenly: 30% due in April, 40% in June, nothing in September, and the final 30% in January.

California Estate Tax

California has no state estate tax and no inheritance tax. Estates face only the federal estate tax, which applies well above most households’ net worth. In practice, Prop 19 means the property tax consequences of inheriting a California home matter more to most families than estate tax ever did.

The Bottom Line

California’s rates are high and its rules are specific: a nine-bracket income tax with no capital gains break, property taxes governed by two ballot propositions, and an $800 floor under every LLC. Most of the real planning opportunities are in timing and entity structure rather than deductions.

If you want to talk any of this through, see how we work as accountants across San Diego, or visit our San Diego office.