Tax Planning
State Income Tax Credit Changes in California: Business Incentives & Conformity Updates
Recent legislative changes in California update tax credits for businesses, adjust conformity with federal law, and overhaul credit limitations starting 2030.
By NomadicTax Research Team • 5-8 min read • August 24, 2026
## Legislative Changes Under California SB 122 / SB 180
California recently enacted **Senate Bill 122** and **Senate Bill 180**, which modify several state tax credit programs and conformity with federal tax law. ([ftb.ca.gov](https://www.ftb.ca.gov/about-ftb/newsroom/tax-news/index.html?utm_source=openai))
### What’s New in California Business Credits
- The sunset for certain **business credit limitation and annual refundable credit election periods** has been extended **three years**, now applying to taxable years beginning before **January 1, 2030**. ([ftb.ca.gov](https://www.ftb.ca.gov/about-ftb/newsroom/tax-news/index.html?utm_source=openai))
- Starting **January 1, 2030**, specified tax credits will only reduce a taxpayer’s liability by up to **70% of tax (or net tax)**, or **$5 million**, whichever is greater. Unused credit amounts become credit carryovers. ([ftb.ca.gov](https://www.ftb.ca.gov/about-ftb/newsroom/tax-news/index.html?utm_source=openai))
### First Year Minimum Tax Annual Reduction for Pass-Through Entities
For LLCs, LPs, LLPs not classified as corporations: for taxable years beginning **2027 through 2029**, their **first-year annual/minimum tax** will be **halved**—reduced from **$800 to $400**. ([ftb.ca.gov](https://www.ftb.ca.gov/about-ftb/newsroom/tax-news/index.html?utm_source=openai))
### Other Conformity Updates
- California is aligning state law with recent federal changes related to **ABLE Accounts** under IRC § 530A and federal legislation. ([ftb.ca.gov](https://www.ftb.ca.gov/about-ftb/newsroom/tax-news/index.html?utm_source=openai))
- The ABLE/530A conformity helps taxpayers benefit from federal savings and investment options now recognized at the state level. ([ftb.ca.gov](https://www.ftb.ca.gov/about-ftb/newsroom/tax-news/index.html?utm_source=openai))
## Practical Implications for Tax Planning
| Taxpayer Type | Impact & Recommended Strategy |
|---------------|-------------------------------|
| Businesses with big tax credits | Be mindful of the 70% limitation starting 2030—plan to use credits before the limitation takes effect, or structure incentive usage across years. |
| Small or mid-sized LLCs / LLPs entering their first year | Reduced annual minimum tax for 2027-2029 eases initial burden—use this window to plan entity formation timing. |
| Those using ABLE accounts | Ensure investments or contributions under ABLE meet both state & federal criteria moving forward. |
| Families with children born 2025-2028 | Trump Accounts pilots may also play a role under ABLE conformity. |
## Example Scenarios
- A California LLC formed in 2027 will pay $400 minimum tax in its first year rather than $800. |
- A C-corporation using multiple state credits worth $10 million in 2031 may only use credits to offset up to 70% of tax—carryovers required for the rest. |
- A parent opening an ABLE or Trump‐linked account should check whether California recognizes the account structure & investment eligible at the state level. |
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**Bottom Line:** California’s SB 122 / SB 180 bring big changes—expanding conformities and limiting credit usage. Businesses and pass-throughs should act now to structure credit eligibility, minimize tax liability, and take advantage of temporary benefits.