California Year-End Tax Planning Strategies Your Clients Shouldn’t Miss (2025 Edition)

As tax professionals continue to focus heavily on federal planning opportunities created by the One Big Beautiful Bill Act, it’s equally important not to overlook how powerful California-specific tax strategies can be—especially for creators, medical professionals, e-commerce business owners, and high-income individuals.

Unlike the IRS, California continues to allow certain deductions and planning tools that can significantly lower your overall tax burden if you act before December 31.

Below is a detailed overview of key opportunities, paired with real-world examples of how Velin & Associates helps clients such as YouTubers, Shopify store owners, Amazon sellers, doctors, dentists, filmmakers, and high-net-worth individuals maximize year-end savings.

Lowering Federal AGI Can Boost California Deductions

California ties many of its deductions to federal AGI, not California AGI. This means that reducing your federal AGI can unlock additional deductions on your California Schedule CA.

California still allows:

• Medical expenses above the 7.5% of AGI threshold
• Miscellaneous itemized deductions subject to the 2% AGI floor
• Certain unreimbursed business-related expenses

Federal AGI reduction strategies that ALSO benefit California taxpayers include:

✔ Maximizing retirement contributions (Solo 401(k), SEP IRA, Traditional IRA)
✔ Contributing to Health Savings Accounts
✔ Accelerating business expenses into 2025
✔ Prepaying certain deductible costs

Examples:

Example 1 — YouTuber / TikToker (CPA for YouTubers | CPA for TikTokers)
A content creator expects $380,000 of net income in 2025. By maximizing a Solo 401(k) deferral and accelerating equipment purchases (new cameras, lighting, editing software), they reduce federal AGI enough to qualify for additional California miscellaneous deductions that otherwise would be phased out.

Example 2 — Dentist or Medical Practice (CPA for Doctors | CPA for Dental Practice)
A dentist with high unreimbursed continuing education expenses can benefit from reducing AGI before year-end through retirement plan contributions. Lower AGI enables them to deduct more medical and miscellaneous expenses on their California return.

Example 3 — Shopify / Amazon Seller (CPA for Shopify Store | CPA for Amazon Business)
An online commerce business owner purchases inventory, warehouse supplies, and packaging materials before December 31. These federal deductions reduce AGI, which increases the allowable California deductions that rely on the federal AGI threshold.

NOLs Are Suspended for 2025 and 2026 — Plan Carefully

California has suspended net operating loss (NOL) deductions for:

• 2025 and 2026 tax years,
• unless business income or modified AGI is under $1 million.

For corporations, the threshold is $1 million of California taxable income.

Planning Strategy

If your income is trending above the $1M threshold, you may want to accelerate expenses into 2025 to drop below the limit and preserve the ability to use NOLs.

This includes purchasing depreciable assets such as:

• Medical equipment
• Production gear
• Computers and servers
• Vehicles
• Office furniture

While California does not conform to federal bonus depreciation or full Section 179 rules, the California depreciation deduction for 2025 may still reduce income enough to bring you below the threshold.

Examples:

Example 4 — Filmmaker / Production Company (CPA for Filmmakers | CPA for Creators)
A filmmaker expects $1.2M of net income from several commercial projects. By purchasing new editing suites and studio equipment before year-end, they lower business income to $985,000—restoring eligibility for the NOL deduction in 2025.

Example 5 — Medical Office / Dermatology Practice (CPA for Medical Practice | Dentist CPA)
A dentist planning to buy digital X-ray equipment in early 2026 may instead accelerate the purchase into 2025. The additional depreciation pushes taxable income below $1M, allowing the practice to maintain the ability to use NOLs during the suspension years.

Example 6 — Amazon Private Label Seller (CPA for Online Commerce | CPA for Amazon Business)
A seller accelerates inventory purchases to lower 2025 business income, ensuring they stay under California’s $1M threshold and can claim NOLs if needed.

Pass-Through Entity Tax (PTET) — Should You Make an Extra Payment in 2025?

California’s PTET allows certain pass-through entity owners (S-corps, partnerships, LLCs taxed as partnerships) to claim a federal deduction for state taxes paid at the entity level.

Opportunity:

Taxpayers who met the June 16 prepayment requirement can make an additional PTET payment by December 31, 2025.

Benefits:

• Increases federal SALT deduction
• Reduces the net income passed to owners on their federal Schedule K-1
• Lowers federal AGI (which can improve California deductions)

But Be Careful:

Avoid making an additional PTET payment if:

• Your 2025 income is significantly lower than 2024, or
• Fewer owners will consent to PTET in 2025

Examples:

Example 7 — High Net Worth Individual With Real Estate Partnerships (CPA for High Net Worth Individuals)
A partnership owner expects higher 2025 income. Making an additional PTET payment allows them to claim a larger federal deduction and reduce California AGI-driven limitations.

Example 8 — Creative Agency S-Corp Owner (CPA for Creators)
A design agency anticipates lower 2025 income because a major client contract ends. In this case, Velin & Associates advises not to make the additional payment due to lower projected qualified net income.

California College Access Tax Credit — 50% Credit Opportunity

California offers a 50% tax credit for contributions to the College Access Tax Credit Fund.

Key Rules:

• You cannot claim a charitable deduction on the California return for contributed amounts
• Federal charitable deduction must be reduced by the amount of the state credit received

Examples

Example 9 — Doctor or Dentist With High Income
A physician contributing $10,000 receives a $5,000 California tax credit, significantly reducing their tax liability while supporting education initiatives.

Example 10 — E-commerce Entrepreneur / Shopify Owner
A Shopify store owner with a high-profit year uses the credit to reduce California income tax by thousands of dollars, even though their federal charitable deduction is reduced.

Final Thoughts: California Tax Planning Has Unique Advantages

Federal tax rules get the headlines, but California still offers powerful planning tools—especially if your CPA understands how federal AGI interacts with California’s unique deduction structure.

At Velin & Associates, Inc., we work with:

• YouTubers, TikTokers, and creators
• Shopify and Amazon sellers
• Filmmakers and creative professionals
• Doctors, dentists, and medical practices
• High-net-worth individuals with complex income

We look at both federal and California opportunities to ensure you’re not leaving money on the table.

For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

CPA for YouTubers | CPA for Shopify Store | CPA for Online Commerce | CPA for Creators | Shopify Store CPA | CPA for Filmmakers | CPA for Amazon Business | Amazon Business CPA | CPA for Dental Practice | Dentist CPA | Dental Business CPA | Online Commerce CPA | CPA for TikTokers | CPA for Doctors | CPA for Medical Practice | CPA for High Net Worth Individuals