Los Angeles Tax Prep: 7 Deductions Most People Miss in 2025

Most Angelenos fear overpaying taxes every spring—yet the truth is, most residents are missing out on thousands in legal write-offs because they don’t know where to look. Whether you’re a W-2 employee in West LA, a 1099 freelancer running a business from your apartment, a real estate investor in Echo Park, or you manage your family’s tax prep for an LLC in Mid-City, the odds are that you’re skipping deductions that matter. The actual culprit? Outdated advice, IRS rule changes, and California-specific quirks that generic tax software never flags.

Quick Answer: For 2025, Los Angeles taxpayers routinely miss deductions for self-employed retirement plans, California college savings, energy credits, business use of home, and real estate bonus depreciation. The IRS and the FTB now offer new options—but each has eligibility traps and documentation twists. Knowing what to file (and when) makes a high four- or even five-figure difference at every income level.

When it comes to Los Angeles tax preparation, one of the most common mistakes I see is relying only on generic software that doesn’t account for California-specific adjustments. For example, the IRS allows 100% bonus depreciation in 2025 (Form 4562), but the California FTB partially disallows this for high-income taxpayers. A smart LA filer knows to run parallel calculations—one federal, one California—so you’re not surprised by a state-side tax bill in April.

Hidden Gold: SEP IRAs & Solo 401(k)s for 1099 and Small Business

If you earn any type of 1099 income in Los Angeles, skipping a retirement deduction costs you money.
SEP IRA: Self-employed Angelenos and LLCs can deduct up to $69,000 for 2025. Example: Priya, a freelance video editor earning $110,000, contributed $23,000 and cut $6,700 from her federal bill and $1,396 from CA tax. Not a single tax software she tried ever suggested this.

• Contribution deadline is April 15, 2026, or your filing extension date.
• Bonus: S Corps can use Solo 401(k)s, allowing owner-employees to max out both employer and employee portions—up to $76,500 for age 50+.

Red Flag Alert: The IRS often flags mismatches on SEP contribution limits. See IRS Solo 401(k) plan guidance. Document all contributions, and keep Form 5498 from your broker as proof.

High earners in LA often underestimate how much strategy goes into Los Angeles tax preparation. If you have both W-2 and 1099 income, stacking deductions requires sequencing—first maxing pre-tax retirement accounts, then layering in SEP or Solo 401(k) contributions. Done correctly, you can reduce adjusted gross income (AGI) enough to qualify for additional credits like the energy credit under IRS Form 5695 or avoid phaseouts on child-related deductions.

What If I Don’t Get a 1099 Form?

If you received payment but not a 1099, you are still required to report income. Failing to do so is a common audit trigger. The IRS has digital records for most third-party payments—don’t assume missed forms keep you safe.

The Overlooked CA 529 Plan: College Savings for Every Family

You don’t need kids to take advantage of California’s 529 plan. Many LA residents wrongly think 529s only benefit parents. In truth, any taxpayer can contribute and grow funds tax-free for education—your own, a sibling’s, or a friend’s child.

• Contributions to ScholarShare 529 plans grow tax-free for both CA and federal taxes.
• Investing $2,500 yearly for a child can reduce college debt by over $13,000 over 10 years, all tax sheltered.

Myth Buster: You can’t deduct 529 contributions on your CA return, but every investment dollar grows and is exempt from capital gains even if withdrawn for future qualified expenses.

Energy Credits: Federal and California Upgrades in 2025

Few residents file for the updated 30% Energy Efficient Home Improvement Credit—new for 2025. The IRS provides up to $3,200 per year for heat pumps, insulation, windows, advanced doors, or solar. California boosts this with additional state rebates, sometimes over $1,000 for certain zip codes.

• Any primary residence (owned, not rented) is eligible for the federal credit.
• Ask for Form 5695, and compare rebates from SoCal Edison or LADWP for stacking.

Caution: IRS auditors look for mismatched improvements vs. home ownership records. Always save invoices and utility confirmations. See IRS Form 5695

Pro Tip: Bundling multiple upgrades in the same year maximizes both federal and CA energy credits, but keep receipts from all vendors for at least 7 years.

The Home Office Deduction in Los Angeles: Updated Rules, Big Savings

The IRS changed home office rules in recent tax years, and many Angelenos now qualify—especially in high-rent neighborhoods. If you are self-employed or an LLC, deduct $5/sq ft up to 300 sq ft—no receipts required under the simplified method.

• Example: Jackie, a 1099 marketing consultant in Silver Lake, claimed a 175 sq ft office. She wrote off $875 and saw a $312 net reduction in her federal and CA bill. Larger spaces save even more.
• To claim: Must use space regularly and exclusively for business—a kitchen table setup won’t fly with the IRS.

IRS Publication 587 details the full requirements for home office deductions, including the simplified calculation method.

Can W-2 Employees Take This Deduction?

W-2 employees working from home can’t claim this write-off on federal returns—unless reimbursed by their employer or part of a qualified California unreimbursed expense program. However, certain creative professionals (union writers, directors) may qualify for union-deducted expenses on the state side.

Bonus Depreciation for Real Estate: 2025’s Last Great Year

The federal tax code restored 100% bonus depreciation for certain rental and business assets in 2025. LA landlords and investors can now write off the full value of property improvements and non-residential real estate, all in the year placed in service.

• Example: Eduardo, an LA-based duplex owner, replaced roofing ($27,000) and HVAC ($8,400). He claimed $35,400 bonus depreciation, saving $10,620 in federal and $2,656 CA tax instantly.
• Note: This is the last year before phaseouts return. Be strategic on purchase timing.

See latest IRS rules on bonus depreciation (Form 4562). California limits this for higher-income taxpayers; consult a local planner for edge cases.

Why Most Los Angeles Taxpayers Miss These Deductions

Outdated accountant advice, fear of triggering an audit, and confusion over California-specific twists are the big three reasons people overpay. Red flag: relying solely on software, generic online articles, or a preparer outside Southern California.

• IRS rules for deductions shift every year; California adds layers of complication.
• Example: The CA Franchise Tax Board (FTB) enforces stricter substantiation for LLCs and may deny energy or depreciation deductions if Form 568 is incomplete.
• Trap: Not tracking documentation or using “rules of thumb” leads to denied deductions and even penalties.

Effective Los Angeles tax preparation isn’t just about finding deductions—it’s about proving them. The IRS is increasingly document-driven, and the FTB has its own audit triggers. For 2025, keep digital copies of invoices, 1099s, utility bills, and brokerage statements organized by deduction category. If audited, being able to produce Form 5498, 4562, or 568 on demand can be the difference between keeping a $20,000 deduction and writing a painful check back to Sacramento.

How To Avoid These Traps?

Work with a specialist who understands federal and California law, and get in writing which forms, receipts, and substantiation are needed. Schedule a pre-tax season check-in to review eligibility and ensure nothing is missed.

Mic Drop: “The IRS isn’t hiding these write-offs—you just weren’t taught how to find them.”

KDA Case Study: 1099 Film Producer Gets $14,900 in Missed Deductions

Client: Senior film producer, 44, operating as a single-member LLC (income $212,000), living in Los Feliz.

Problem: Previous accountant filed generic federal and California returns, missing SEP IRA, partial home office, and bonus depreciation on post-production equipment.

Solution: KDA conducted a full review for 2024 and 2025. We set up a Solo 401(k) with a $41,200 contribution, structured a simplified home office deduction for the rented studio ($1,080), and corrected capital expense allocations. We documented all expenses with IRS, CA, and industry substantiation.

Tax Savings: $14,900 saved in the first year. The client paid $4,495 for a comprehensive tax strategy package—ROI: 3.3x after year one. Ongoing: quarterly planning and substantiation tracking to avoid audits and unlock future credits as LA’s tax rules change.

FAQs for 2025 Los Angeles Tax Preparation

Can renters in LA claim energy improvement credits?

No—only owners can claim the federal energy credit, though renters who pay utilities may qualify for state rebates. Check with SoCal utility providers for partial reimbursement programs.

How do I know if I need to file Form 568 for my LLC?

Every California LLC (even single-member or loss-year) must file Form 568 and pay the $800 minimum franchise tax unless formally dissolved. Many LA LLC owners miss this in their first year, triggering FTB penalties.

Will bonus depreciation trigger an audit?

Large year-one depreciation can be a red flag if deducted without proof of qualifying property. Keep detailed invoices, asset listings, and service documentation. Attach Form 4562 to your federal return and note any CA deductions that don’t carry through.

This information is current as of 8/31/2025. Tax laws change frequently. Verify updates with the IRS or FTB if reading this later.

Schedule Your Los Angeles Tax Strategy Session

Ready to stop overpaying and stop guessing about what you can deduct? Book a personalized tax strategy consult with KDA’s Los Angeles experts. We’ll dig deep into your W-2, 1099, LLC, or investment situation and guarantee to find at least 3 savings you’re missing—or your consult is free. Click here to schedule your LA tax strategy session now.