Legal Foundation
- Statute: California Revenue & Taxation Code (R&TC) § 23455 adopts the federal AMT regime (IRC § 55) with state-specific rates and adjustments.
- Rate: 6.65 percent of California alternative minimum taxable income (AMTI) after the state exemption; 8.65 percent for banks and financial corporations.
- Exemption: First $40,000 of AMTI is exempt; the exemption is reduced by 25 percent of AMTI > $150,000 and is fully phased out at $310,000.
- Comparison Rule: Pay the greater of regular tax (8.84 %) or AMT. Excess AMT becomes a credit under R&TC § 23454, usable against future regular tax with no carry-expiration.
Key AMT Adjustments California Keeps
| Category | Typical Adjustment | Code Reference |
|---|---|---|
| Depreciation | Add back accelerated MACRS over straight-line ADS | R&TC § 23456(a) (conforms to IRC § 56) |
| Long-Term Contracts | Re-compute using percentage-of-completion | IRC § 460(b); R&TC § 23456(b) |
| Net Operating Loss | NOL usable for AMT is limited to 80 % of AMTI | R&TC § 23456(c) |
| Adjusted Current Earnings (ACE) | Add 75 % of ACE > AMTI | R&TC § 23457 (mirrors IRC § 56(g)) |
Step-by-Step AMT Computation (Form 100, Sch. P)
- Start with Federal Taxable Income.
- Add CA Adjustments (water’s-edge, R&D credit add-backs, etc.).
- Apply AMT Adjustments (depreciation, ACE, preference items).
- Arrive at California AMTI.
- Less Exemption ($40,000 or phased amount).
- Multiply remainder by 6.65 % → Tentative Minimum Tax (TMT).
- Compare TMT to Regular Tax; pay the larger.
- If TMT exceeds Regular Tax, record the excess on Form 100, line 37, and establish an AMT credit on Schedule P, Part II.
Worked Example — QuantumDrive, Inc.
| Item | Amount |
|---|---|
| Federal taxable income | $350,000 |
| CA adjustments | +$5,000 |
| AMTI before preferences | $355,000 |
| ACE adjustment (75 % of $30,000) | +$22,500 |
| Depreciation add-back | +$18,000 |
| California AMTI | $395,500 |
| Exemption (phased-out: $40,000 – 25 % × ($395,500 – 150,000) = $0)** | 0 |
| TMT (6.65 %) | $26,280 |
| Regular CA tax (8.84 % × $355,000) | $31,372 |
| Tax Owed: Regular tax greater, so pay $31,372; no AMT credit generated. |
If QuantumDrive had lower regular tax—say, after R&D credits—the excess of TMT over regular tax would become an AMT credit carryforward.
Managing the AMT in Practice
- Track the Credit — use Schedule P, Part II; credit carries forward indefinitely until used.
- Monitor ACE & Depreciation — consider electing straight-line ADS to minimize future AMT.
- Leverage R&D Credit Strategically — R&D credit cannot reduce AMT below the TMT but can reduce regular tax, increasing the chance AMT applies; model both taxes annually.
- NOL Planning — AMT NOL is computed on AMTI, not regular income; keep dual ledgers.
- Combined Groups — each unitary member has its own $40k exemption and phase-out; compute AMT on a member-by-member basis.
Conclusion
While California’s AMT hits profitable C-corps at 6.65 percent, it rarely exceeds the regular 8.84 percent tax once R&D credits and NOLs enter the picture. Still, founders should project both taxes yearly, track the AMT credit, and manage depreciation and ACE adjustments to avoid unpleasant surprises.
Call to Action
Need an AMT vs. regular-tax projection or help tracking Schedule P adjustments? Book a strategy session with Anshul Goyal, CPA EA FCA: https://calendly.com/anshulcpa/
Disclaimer
Anshul Goyal, CPA EA FCA, is a licensed Certified Public Accountant in the United States and an Enrolled Agent admitted to practice before the IRS. He represents clients in tax litigation and assists American businesses and Indians in the United States with cross-border compliance. This article is educational; obtain professional advice for your specific facts.
Top 5 FAQs
| Question | Short Answer |
|---|---|
| 1. Do S-corps pay California AMT? | No; only C-corps and financial corps are subject. |
| 2. Is the AMT credit refundable? | No; it offsets future regular tax and carries forward indefinitely. |
| 3. Does bonus depreciation trigger AMT in California? | Yes—accelerated depreciation is added back for AMT. |
| 4. How does the $40k exemption apply in combined reports? | Each taxpayer member gets its own exemption and phase-out. |
| 5. Can R&D credits offset AMT? | No; they offset regular tax only, which can cause AMT to apply. |
About Our CPA
With 15 years of U.S. and international tax experience, Anshul Goyal, CPA EA FCA has prepared more than 20,000 returns and saved clients over $200 million. As Managing Partner of Kewal Krishan & Co., he guides AI and SaaS founders through California corporate tax, R&D credits, and exit-ready structuring.