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California’s New SB 711 Tax Conformity: What It Means for You in 2025 and Beyond

(A Practical Guide for Creators, Doctors, Online Sellers, High-Income Professionals & Small Businesses)

California has always been known for doing things differently—and its tax system is no exception. For years, the state has only partially followed federal tax laws. This “partial conformity” has caused confusion for individuals, businesses, and even experienced tax professionals.

In 2025, California passed SB 711, a major update that—at least on paper—moves California’s conformity date to January 1, 2025. That means the state should be aligning with federal tax rules from the last 10 years.

But in reality?
California adopted some federal rules and intentionally rejected many others.

This article explains in plain English:

What Is SB 711?

SB 711 is a California law passed in 2025 that updates the state’s “conformity date.” In simple terms:

👉 It tells us which federal tax laws California agrees to follow.

California’s old conformity date was January 1, 2015. After SB 711, it jumped 10 years—to January 1, 2025.

But this doesn’t mean California automatically adopted every federal tax change from the past decade. Instead, legislators reviewed hundreds of provisions and decided:

✔ Which rules California will adopt
✖ Which rules California will reject

So even though the conformity date moved forward, the tax differences remain extensive.

For taxpayers, this means more situations where your federal return will look very different from your California return.

New Areas Where California Now Conforms to Federal Law

Here are some important areas where California now matches the federal rules after SB 711.

1. Alternative Simplified Research Credit (R&D Credit)

California now allows the Alternative Simplified Credit (ASC) — but with different percentages than the federal credit.

Example:

A Los Angeles e-commerce brand client (Shopify store owner) conducting product testing used the federal ASC for years but could not claim the CA version. With SB 711, they now qualify for the CA simplified credit—lowering their state tax liability significantly.

2. Higher Non-Taxable Loan Amounts for Disaster Victims (Retirement Plans)

California now allows larger penalty-free withdrawals from retirement accounts for disaster relief—matching federal rules.

Example:

A dentist (Dental Practice CPA client) affected by flooding in Los Angeles County withdrew retirement funds federally without penalty. Under old CA rules, they owed CA tax.
Now, California matches the federal exclusion—saving the client thousands.

3. Disallowance of Deductions for Fines, Penalties & Certain Settlements

California now aligns with federal rules that block deductions for:

This reduces gray areas for businesses.

4. Farm Equipment Depreciation (200% Declining Balance Method)

California now allows the same method used federally—helpful for California farms and agricultural operations.

5. Increased Penalties for Incorrect Information Returns

California now matches federal penalties:

Areas Where California Still Does Not Conform

This is where taxpayers—especially creators, online sellers, and small businesses—must pay attention.

California continues to reject many major federal updates. Here are the most important ones.

1. No Bonus Depreciation (BIG Difference!)

Federal law allows 100% bonus depreciation.
California does not.

Example:

A YouTuber (CPA for YouTubers client) buys $10,000 in camera gear.

Federal return: deducts 100%
California return: takes only regular depreciation over several years

This creates California add-backs, increasing state taxable income.

2. Section 179 Deduction Limits (Much Lower in CA)

Federal limits exceed $1 million.
California’s limits are much smaller, causing major differences for equipment-heavy businesses.

3. Qualified Improvement Property (QIP) – No 15-Year Life

Federal: 15-year life + bonus depreciation
California: longer life + no bonus depreciation

Example:

A medical practice renovating exam rooms must depreciate improvements slowly for CA purposes.

**4. Net Operating Loss (NOL) 80% Limitation Does NOT Apply in CA

California uses old NOL rules.
Federal NOL rules after TCJA do not match.

5. No Federal 5-Year S-Corp Built-In Gains Reduction

California still uses 10 years.

This impacts business owners planning corporate restructuring or asset sales.

6. Meals & Entertainment Limitations Differ

California did not adopt many federal updates on M&E deductions.

This creates mismatches for entertainers, influencers, and production companies.

7. Charitable Contribution Limits: CA Does NOT Adopt the 60% Cap

Federal: 60% AGI limit for cash contributions
California: still uses 50%

8. Gambling Losses: CA Uses Older Rules

Professional gamblers and poker players must track different rules for state vs. federal filings.

9. Casualty Loss Changes Not Adopted

California rejects:

10. Education Savings: 529 Accounts

California does NOT conform to:

Families may owe CA tax even on federally tax-free transactions.

11. New Below-the-Line Federal Deductions Ignored by CA

California does not recognize federal deductions for:

What Does This Mean for California Taxpayers?

In short:

👉 Your federal tax return and your California tax return will continue to be very different.

People most affected include:

California taxpayers must understand these differences to avoid:

✔ Higher CA tax bills
✔ Audit risk due to mismatched federal/state depreciation
✔ Incorrect credits or deductions
✔ Underpayment penalties

How Velin & Associates Helps Clients Navigate These New Rules

At Velin & Associates, Inc., we regularly assist:

We ensure both your federal and California tax positions are accurate, optimized, and defensible. If you operate in Los Angeles—or anywhere in California—this year’s conformity changes make professional guidance essential.

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



Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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