California Personal Income Tax - Individuals
Core structure
California starts from federal adjusted gross income and applies California-specific modifications. Candidates must know the major adjustment categories: California does not allow a deduction for state income taxes paid, does allow a deduction for real property taxes (with limits), and conforms selectively to federal provisions. Know the difference between the standard deduction amounts for single, married filing jointly, and head of household filers, and how personal exemption credits work as credits rather than deductions.
Concepts to master
Understand California's treatment of capital gains as ordinary income (no preferential rate), the itemized deduction phase-out for high-income taxpayers, and the mental health services tax on taxable income above the million-dollar threshold. Know the exemption credit structure and the dependent exemption credit. Familiarize yourself with the California Earned Income Tax Credit and Young Child Tax Credit eligibility.
Common traps
Questions often test whether a taxpayer may claim a deduction California disallows, or whether a federal credit carries over. Watch for the distinction between a deduction (reduces income) and a credit (reduces tax). Another trap: part-year and nonresident filing rules - California sources income by residency period and California-source rules.
Rule of thumb
If a federal itemized deduction relates to state or local income taxes, assume California disallows it unless a specific statute says otherwise.
Worked example
A single filer with $200,000 taxable income owes the mental health tax on the amount above $1,000,000 - here zero. But a filer at $1,200,000 owes the 1% tax on $200,000 = $2,000, in addition to regular tax.