If you have less than the threshold amounts of: Property, Payroll and Sales.
You can still be doing business if you actively engage in a transaction in California for:  Financial gain or Profit
Less than the CA property, payroll, or sales for doing business Scenario:  Partnership A, an out-of-state partnership, has employees who work out of their homes in California. The employees sell and provide warranty work to California customers. Partnership A's property, payroll, and sales fall below the threshold amounts in California. Is Partnership A doing business in California?

Answer: Yes. Partnership A is doing business in California through its employees because those employees are actively engaging in transactions for profit on behalf of Partnership A. Partnership A is doing business in California even if the property, payroll, and sales in California fall below the threshold amounts.

25% threshold computation Scenario: Corporation B, an out-of-state corporation, has $100,000 in real property, $200,000 in total payroll, and $1,000,000 in total sales, of which $400,000 was sold to California customers. Corporation B has no property or payroll in California.

 

Is Corporation B doing business in California?
Answer: Yes. Although Corporation B's California sales are less than the $500,000 threshold,  Corporation B's California sales are 40%, which exceeds 25% of the total sales ($400,000 ÷ 1,000,000 = 40%.)

​Understanding what constitutes taxable and nontaxable income and deductible business expenses.

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 what the tax laws allow you to deduct, it is important that you understand what are 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.