California charges its own state income taxes, in addition to federal income taxes. One big difference for California taxpayers is that you cannot get all of the same tax breaks on your California taxes that you get on your federal taxes.
For example, California does not offer a state tax deduction for money put into health savings accounts (HSAs). California also has lower limits for how much people can deduct for charitable contributions, based on their federal adjusted gross income (AGI). Don't be surprised if your California state taxable income ends up being higher than what you report on your federal tax return.
But residents of the Golden State can still get a few important tax breaks. Let's look at some of the biggest tax deductions and unique state tax credits for California income taxes.
Read more: we researched free tax software and put together a list of the best options here
1. Traditional IRA deduction
One of the biggest and most important deductions that Californians can get on state income taxes -- which is also the same as the federal deduction -- is tax-deductible contributions to a traditional IRA. This will reduce your California taxable income by the same amount as your federal taxable income.
Not every deduction works this way. California doesn't follow the same rules as federal taxes for every type of deduction. So if you qualify to put tax-deductible money into a traditional IRA, definitely take advantage of it. This is yet another good reason to open an IRA: it can reduce your California state income taxes, as well as your federal income taxes.
2. California standard deduction
California has a lower standard deduction than the IRS, but it still might be one of the biggest deductions that California taxpayers can get.
For 2023, the California state income tax standard deduction was:
- $5,363 for single filers and married/registered domestic partner (RDP) filing separately, and
- $10,726 for married/RDP filing jointly, head of household, and qualified widow(er) filing statuses.
This compares to the IRS 2023 standard deduction of $13,850 for single filers, $27,700 for married filing jointly, and $20,800 for head of household. This means that if you're a single taxpayer in California and you take the standard deduction for federal and state taxes, your California taxable income might be $8,487 higher than on your federal return.
3. Deductible home mortgage interest and healthcare expenses
Along with relatively high income taxes compared to other states, California also has a reputation for high-priced real estate. If you own a high-priced home in California, you get one extra tax break on your state income taxes that's better than the IRS offers: California lets you deduct a larger amount of home mortgage interest.
In California, you can deduct home mortgage interest on home purchases up to $1 million. The federal government's tax law only allows for deductible interest on mortgages up to $750,000.
Another tax deduction that California has in common with the IRS is tax-deductible medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI). But keep in mind, you can only deduct the portion of these qualifying healthcare expenses that is larger than that 7.5% cutoff. So if you have $10,000 of medical costs, and your AGI was $100,000, you can deduct $2,500 from your taxes.
And remember: you must take itemized deductions if you want to get California tax breaks for your home mortgage interest or deduct your healthcare expenses. Make sure your total itemized deductions add up to more than the California standard deduction.
4. California tax deductions that you can't get on federal taxes
If you want special state-level tax deductions on your California income taxes, the news isn't all bad. California offers a few tax deductions that the IRS does not allow.
Personal casualty and theft losses
The IRS will allow you to deduct some losses suffered from a disaster, but only if you experience the losses as part of a federally declared disaster. California is more lenient.
California taxpayers who experience the misfortune of a house fire or natural disaster, being victims of theft, or other qualifying casualty losses can deduct those costs on their state income tax returns -- no federal disaster declaration required.
Moving expenses
The IRS no longer allows people to deduct moving expenses (except for some members of the Armed Forces). But California does! You can use California form FTB 3913, Moving Expense Deduction, to get a tax break for the costs of moving to a new home.
Some employee expenses and miscellaneous itemized deductions
Californians can deduct certain expenses that they paid as part of their jobs, tax preparation fees, and some other miscellaneous expenses as part of doing work to earn income. These miscellaneous deductions can only be for the amount that is greater than 2% of your federal adjusted gross income (AGI).
5. Unique California state tax credits
California offers several tax credits for people at all stages of life. These include:
- The California Child and Dependent Care Expenses Credit: To help parents cover the costs of daycare.
- Nonrefundable renter's credit: For people who paid rent at least half the year, and who have income below a certain limit.
- Senior head of household credit: For older adults (age 65 and up) who are recently widowed. This tax credit is worth up to $1,748.
Bottom line
California state income taxes are complicated, and you won't get all the same tax breaks that you're used to seeing on your federal return. Use tax prep software to make sure you get all the California tax breaks you deserve.
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