Key Takeaways

• December 31 is a hard stop, not a suggestion. Roth conversions, charitable transfers, loss harvesting, and depreciation elections must settle or be documented before year-end to count for 2026. Starting in late December turns clean planning into execution risk with consequences that can't be undone.

• California's 13.3% top rate makes the state layer the most expensive single variable in your tax picture. A long-term gain that would cost 23.8% federally costs roughly 37.1% combined for a top-bracket California resident. Every realization, every conversion, every deductible gift works on both layers simultaneously — and California's rules diverge from the federal ones in ways that create real planning mistakes when national content is applied without adjustment.

• California does not conform to OBBBA, and that changes several year-end decisions. California's tax code conformity date (January 1, 2025) predates OBBBA's July 4, 2025 enactment. Federal provisions like the 0.5%-of-AGI charitable floor and expanded bonus depreciation do not apply on the California return. Knowing which rules apply where is the difference between a plan built for California and one imported from a national template.
  
  

For most California high earners, the year-end tax conversation runs on two parallel tracks that rarely get modeled together honestly: the federal layer — brackets, Roth windows, OBBBA provisions, loss harvesting — and the California layer — a top marginal rate of 13.3%, its own standard deduction, its own conformity rules, and a set of deductions and limitations that diverge from the federal picture in several material ways. National year-end content addresses the first track and often ignores the second. For a California resident, that omission can mean the plan is optimized for a hypothetical federal-only taxpayer rather than for the actual combined bill.

This guide is written for California-based business owners, founders, executives, and high-net-worth families whose 2026 returns carry variable or concentrated income. By the end, you will know which moves matter before December 31, where California's rules differ from the federal ones in ways that change the decision, and which common "year-end planning" moves do not actually work the way national content suggests on a California return.

What Closes on December 31 — and Why Timing Matters More Than You Think

Most of your 2026 tax year is already written by October. Wages, realized gains, K-1 income, equity events, and business distributions have largely landed. What is still in your control is which side of December 31 the remaining income and deductions fall on.

That control is the entire point. A charitable gift placed in the right year captures a full deduction at your 13.3% California marginal rate; placed in the wrong year, the California benefit disappears if you do not itemize that year. A Roth conversion sized correctly fills a bracket efficiently; sized incorrectly it can push you into the 1% Behavioral Health Services Tax surcharge zone or into a higher Medicare premium tier two years later.

The deadlines that close on December 31:

• Roth conversions — must complete in the calendar year to count for that tax year

• Charitable contributions and DAF funding — cash must leave the account; appreciated securities must transfer by year-end

• Tax-loss harvesting — determined by trade settlement, not by intent

• Business capital expenditures — assets must be placed in service for depreciation to count

• Deferred compensation elections for next year — must be made before year-end

• Gifts and trust funding — must be completed and documented

California's Tax Profile for 2026: What Makes Year-End Planning Different Here

California's key 2026 tax parameters:

• Top marginal income tax rate: 13.3% — composed of a 12.3% top standard bracket, plus an additional 1% Behavioral Health Services Tax (BHST, formerly the Mental Health Services Tax) surcharge on taxable income over $1,000,000. The 12.3% bracket begins at approximately $742,954 for single filers and $1,485,907 for married filing jointly. The $1,000,000 BHST surcharge threshold is a flat dollar amount that applies the same way regardless of filing status — it is not doubled for married couples filing jointly. A married couple filing jointly with $1,050,000 in taxable income owes the 1% surcharge on the same basis as a single filer at that income level.

• Capital gains: California taxes long-term and short-term capital gains identically, as ordinary income, at rates up to 13.3%. California offers no preferential rate for long-term gains.

• California standard deduction: $5,706 for single filers / $11,412 for married filing jointly (2026, confirmed from FTB). California sets its own standard deduction independently from the IRS — federal increases do not automatically raise the California deduction. The federal standard deduction for 2026 is $16,100 single / $32,200 MFJ — nearly three times California's amount. This gap means many California taxpayers who take the standard deduction federally should still evaluate itemizing on their California return, because their California-deductible expenses may exceed $5,706/$11,412 even when they fall short of the much higher federal threshold.

• California has no SALT cap: California does not impose a state-level cap on the deduction for state and local taxes on the California return. The OBBBA's $40,400 SALT cap for 2026 is a federal-only limitation. Californians can deduct the full amount of their property taxes, state income taxes, and other allowable state and local taxes on their California return without any cap — making itemizing on the California return potentially valuable even in years when it is not beneficial federally.

• No California estate or inheritance tax: California imposes neither.

• Early withdrawal penalty: An additional 2.5% California tax applies to early retirement distributions before age 59½, on top of the federal 10% additional tax.

California's OBBBA conformity position: California's general IRC conformity date was updated to January 1, 2025 by SB 711. Because OBBBA was signed on July 4, 2025 — six months after California's conformity cutoff — California does not automatically conform to OBBBA's provisions. Specific OBBBA changes that do not apply on the California return include:

• The 0.5%-of-AGI floor on itemized charitable deductions — does not apply in California. Charitable contributions remain deductible on the California return without this floor.

• The expanded 100% bonus depreciation for assets placed in service after January 19, 2025 — California requires its own depreciation schedule; bonus depreciation claimed federally must generally be added back on the California return.

• The expanded federal §179 limits ($2.56M/$4.09M for 2026, inflation-adjusted from the OBBBA 2025 base of $2.5M/$4M) — California has its own, lower §179 limits that should be confirmed with your CPA for the applicable tax year.

The Five Year-End Moves That Matter Most for California Families

1. Time Gain Realizations Around Both the Federal and California Layers

For California residents, the combined effective rate on a long-term gain is approximately 37.1% — 23.8% federal plus 13.3% California. California applies the same rate to short-term and long-term gains, so the one-year federal holding period creates no California benefit. All gain realization decisions should be modeled on the combined rate.

The $1,000,000 BHST threshold creates a secondary planning point: gains that push California taxable income over $1M trigger the extra 1% on those dollars. Where possible, spreading large realizations across tax years — or keeping a given year's combined income under the $1M line — avoids that marginal surcharge.

2. Roth Conversions: Size Precisely and Watch the BHST Threshold

A partial Roth conversion locks in today's combined rate in exchange for tax-free growth and distributions later. The discipline: convert only enough to fill the current federal bracket and stop. Monitor the $1,000,000 California BHST threshold separately from federal bracket edges. Pay the conversion tax from outside assets — using IRA funds to cover the bill shrinks the balance meant to compound tax-free and may trigger California's 2.5% early withdrawal penalty if you are under 59½. The Medicare two-year lookback (a large MAGI this year can raise Part B and D premiums in 2028) applies on top of the state considerations.

3. Charitable Giving: The California Layer Makes In-Kind Donations Even More Valuable

At 13.3%, California makes charitable deductions more valuable than in any other state. Donating appreciated securities in-kind — rather than selling first and donating cash — eliminates the embedded capital gain at the full 37.1% combined rate and still delivers a full fair-market-value deduction on both returns.

Example: $250,000 long-held stock with $50,000 basis ($200,000 embedded gain)

The California piece alone ($26,600) exceeds what the full federal tax liability would be in many lower-rate states — which is why in-kind donations are especially high-leverage for California residents.

Critical California conformity point on charitable deductions: Under the federal OBBBA, itemized charitable deductions are reduced by 0.5% of the taxpayer's AGI. This 0.5% floor does not apply on the California return. Because California has not conformed to OBBBA's charitable provisions, California itemizers can deduct the full amount of qualifying charitable contributions without any AGI-floor reduction. For a donor with $850,000 in AGI, the federal floor reduces the deductible charitable amount by $4,250; the California deduction is unaffected.

A donor-advised fund lets you take the full deduction in 2026 — including the full California deduction — while distributing grants over time. Fund it before December 31.

4. Tax-Loss Harvesting: California Taxes All Gains at the Same Rate

California taxes short-term and long-term capital gains identically. Harvested losses offset both at the same 13.3% California rate, regardless of whether the gain being offset is short-term or long-term. On a $50,000 harvested loss, the California tax saved is $6,650 in addition to the federal benefit. Watch the 30-day wash-sale window — a late-November harvest needs to clear before late December to avoid disallowance.

5. Business Owners: California Depreciation Is a Separate Analysis

100% federal bonus depreciation is permanent for qualifying assets acquired and placed in service after January 19, 2025. California does not conform. A business claiming 100% bonus depreciation federally must generally add back the excess depreciation on the California return and depreciate the asset on California's own schedule. The federal benefit is real and immediate; the California benefit is deferred across the asset's life, not immediate. Modeling these as the same number overstates current-year combined tax savings significantly.

California §179 follows its own limits — confirm with your CPA before making elections that assume federal and California treatment are identical.

Federal OBBBA Provisions and California Treatment

California Year-End Checklist

Income and bracket management

• Project full 2026 California and federal taxable income separately

• Identify the $1,000,000 BHST threshold — model whether any income can be kept below it

• Model a partial Roth conversion to fill current federal bracket without crossing the BHST threshold

• Evaluate deferring or accelerating discretionary income between 2026 and 2027

Capital gains

• Identify all planned gain realizations; model at the full ~37.1% combined rate

• Identify harvestable losses; California taxes short-term and long-term gains at the same rate

• Watch the 30-day wash-sale window

Charitable giving

• Identify appreciated securities to donate in-kind rather than selling first

• Fund donor-advised fund before December 31

• Federal deduction subject to 0.5% AGI floor (OBBBA); California deduction is not

• If age 70½+, evaluate qualified charitable distributions from the IRA

California-specific itemized deduction analysis

• Calculate itemized deductions on the California return separately from the federal return

• California standard deduction is $5,706 single / $11,412 MFJ — a much lower hurdle than federal

• California has no SALT cap — full property taxes and state income taxes may be deductible on CA return

• Evaluate itemizing on California return even in years when the federal standard deduction wins

Retirement distributions

• Take required minimum distributions before December 31

• Confirm any Roth conversion completes before December 31

• Verify withholding covers both federal and California tax

Business owners — depreciation

• Model California depreciation separately from federal — bonus depreciation add-back required on CA return

• Confirm California §179 limits with CPA before making elections

Estate and gifting

• Complete annual exclusion gifts ($19,000 per recipient in 2026; $38,000 for married couples gift-splitting)

• Confirm beneficiary designations are current

FAQ: Year-End Tax Planning for California High Earners

What is California's top marginal income tax rate for 2026? 13.3%, combining the 12.3% top standard bracket (beginning at approximately $742,954 single / $1,485,907 MFJ) with an additional 1% Behavioral Health Services Tax surcharge on taxable income over $1,000,000. The $1,000,000 surcharge threshold is flat and does not double for married couples filing jointly.

Does California tax long-term capital gains at a lower rate? No. California taxes long-term and short-term capital gains identically as ordinary income, up to 13.3%. For a top-bracket California resident, the combined federal-plus-California rate on a long-term gain is approximately 37.1%. Every capital gains decision should be modeled at the full combined rate.

Does California have a SALT deduction cap? No. The $40,400 federal SALT cap (2026) limits only the federal itemized deduction. On the California return, taxpayers can deduct the full amount of allowable state income taxes, property taxes, and other state and local taxes without any cap. This creates a specific opportunity: itemizing may be beneficial on the California return even in years when the federal standard deduction is more favorable.

Does the OBBBA's 0.5%-of-AGI charitable floor apply to California? No. California has not conformed to OBBBA (California's conformity date is January 1, 2025; OBBBA was enacted July 4, 2025). The 0.5% floor applies only federally. On the California return, itemized charitable deductions remain fully deductible without any AGI-based floor reduction.

Does California conform to OBBBA's 100% bonus depreciation? No. California requires businesses to add back federally-claimed bonus depreciation and depreciate assets on California's own schedule. Business owners should model depreciation elections on each return separately.

What is California's standard deduction in 2026? $5,706 for single filers and $11,412 for married filing jointly, confirmed from the FTB's 2026 Form 540-ES instructions. These are California's own figures, set independently from the federal standard deduction ($16,100/$32,200 for 2026). The gap means many taxpayers who take the federal standard deduction should still evaluate itemizing on the California return.

How should I think about HSAs in California? California does not conform to the federal HSA tax treatment. HSA contributions are not deductible on the California return, earnings are taxable in California, and distributions are not tax-free at the state level. The federal triple-tax benefit is replaced by a state-level tax burden — one of the most commonly missed California non-conformity items.

When should I start year-end planning for 2026? October or November. By that point, year-to-date income is largely visible, federal and California bracket positions can be projected accurately, and there is enough runway to execute charitable transfers, Roth conversions, and business elections before December 31. Starting in mid-December leaves too little margin to execute cleanly.

Ready to Review Your 2026 California Tax Position?

Year-end planning creates the most value for California high earners with variable income, concentrated appreciated positions, equity compensation, a pending business transaction, or significant charitable intent. For California families, the combined 37.1% rate on gains and the multiple ways California's rules diverge from the federal picture — the SALT cap, the charitable floor, the bonus depreciation add-back, the standard deduction gap — are where the biggest planning mistakes occur when national templates are applied without adjustment.

Endeavor Advisors builds California-specific year-end plans that integrate the federal and state layers, align investment management with tax timing, and coordinate with your estate documents — so the decisions made before December 31 hold up when you file. Connect with Endeavor Advisors before your window closes.