California Business Portal

Can you help me understand what is taxable and nontaxable income?

You will generally compute taxable income by starting with gross income, excluding nontaxable income and exemptions, and subtracting allowable deductions. The accounting method that you select will determine the items of income and deductions that you will include in any taxable year.

To take advantage of allowable deductions, it is important that you understand deductible business expenses. Deductible expenses are ordinary and necessary expenses incurred in the operation of your trade or business. On the other hand, you should also know the type of expenses that are not deductible for tax purposes such as fines, state taxes, etc. For audit purposes, it is important that you provide supporting documentation for the expenses you are reporting on your return and demonstrate how these expenses are "ordinary and necessary" for your business.

For most common business expenses, see FTB 984, Common Business Expenses for the Business Owner and Highlights of the Federal/State Differences.

Did you find this article helpful?

Haven't found what you're looking for, send us an email