California CPAs are navigating a transformative period marked by rapid technological adoption, evolving client expectations and significant tax policy changes. During our recent Town Hall, CalCPA and profession leaders covered major trends and challenges that will define the profession in the year ahead—and what it means for firms, their clients and financial professionals across the state.

AI: From Pilot to Practice

If you think AI is just a fad, think again. “If you aren't using AI, you are behind,” said CalCPA Chair Jillian Phan. “Clients are using AI, so they're coming to us with questions that are more sophisticated, expecting answers and quicker turnaround.”

What was once cautious experimentation is now full integration into firm operations as AI tools like ChatGPT, Copilot, Claude and industry-specific platforms are being woven into tax research, document preparation and client communication workflows. AI, however, is not a set it and forget it system. Implementing governance controls to ensure “human in the loop” oversight is key.

Client Advisory Services: The Growth Engine That Could

As compliance work becomes increasingly automated, client advisory services (CAS) are emerging as a significant revenue driver. Firms are seeing approximately 17 percent growth in this area, with average CAS revenue reaching $1.6 million, according to data shared at the Town Hall.

“Clients are expecting to go to a holistic approach,” Phan explained. “They want to address all the concerns and questions at one place, rather than going to different places, so they want the advice that comes with all the aspect.”

This shift reflects a broader trend: clients don't just want compliance anymore. They're seeking strategic partners who can help them navigate complex financial decisions, integrate technology into their operations and plan for the future.

For CPA firms, this means developing new skill sets that blend traditional accounting expertise with IT knowledge, strategic thinking and proactive client engagement.

Tax Season 2026: Ready for the Ride?

This might sound familiar: Tax professionals face a season of significant changes, according to CalCPA member Annette Nellen, professor at San Jose State University.

One of the biggest changes for this tax season is that for the first time, taxpayers will receive Form 1099-DA for digital asset transactions. Due Feb. 17, 2026, these forms will report cryptocurrency and other digital asset sales—but with important caveats.

“It will not cover all digital asset transactions," Nellen cautioned. “1099-DAs are due from U.S. brokers. If they're custodial brokers, they actually hold onto the assets. There are a lot of transactions that don't occur from a custodial U.S. broker.”

She advised CPAs to ensure clients have reliable tracking software and to carefully reconcile 1099-DA amounts against client records, as basis information may not be reported to the IRS in 2025.

The One Big Beautiful Bill Act (OBBA) has introduced four new individual deductions: qualified tips, qualified overtime, qualified vehicle loan interest and a senior deduction, all of which come with complex qualification requirements.

For tips, employers must be able to distinguish between "tips" and "qualified tips"—for instance, mandatory service charges don't qualify, and only certain portions of discretionary tips may be deductible.

"If they put 15 percent, that's not a qualified tip, because it wasn't voluntarily paid," Nellen explained about percentage-based tip options. "If they instead select 18 percent or 20 percent, then 3 percent or 5 percent of whatever the charge is, that's a qualified tip."

Other significant 2025 changes include the state and local tax (SALT) deduction cap increasing to $40,000 (from $10,000), though with phase-out provisions for higher earners. Trump accounts, a new savings vehicle for children, will be available starting July 4, with the government contributing $1,000 for eligible babies born between 2025-2028.

CPAs should also note changes to R&D expensing (returning to immediate expensing for domestic R&D), modifications to charitable contribution rules, and the elimination of premium tax credit enhancements for many taxpayers.

California's Wealth Tax Debate

Against a backdrop of projected budget deficits—ranging from $3 billion (Governor's estimate) to $18 billion (Legislative Analyst's Office)—California is grappling with a proposed wealth tax initiative that could fundamentally alter the state's tax landscape.

The measure would impose a one-time 5 percent tax on California billionaires to fund health care, education and food insecurity programs. Approximately 200 billionaires would be affected, with proponents estimating over $100 billion in revenue.

"There's a lot of interest on this. I feel like I'm talking about the wealth tax all the time," said Missy Johnson, Senior Director of Government Affairs at Nielsen Merksamer. "It's not just California news, but it's also national news."

The initiative faces significant opposition, including from Gov. Newsom and multiple gubernatorial candidates. Critics cite concerns about revenue stability, legal challenges and the potential for high-wealth individuals to leave the state—a trend already evidenced by high-profile departures to Texas and Florida.

For CPAs, this creates immediate advisory opportunities. Clients are seeking guidance on domicile planning, asset protection strategies and tax avoidance measures. Even if the initiative doesn't qualify for the ballot, the conversation has already influenced client decision-making.

Jason Fox, CalCPA's VP of Advocacy and Public Affairs, noted that while CalCPA is monitoring the initiative's progress, the organization has historically opposed wealth tax proposals due to tax administration challenges and concerns about how authorities would value complex assets like private businesses and art collections.

Looking Ahead: Optimism Amid Change

Despite the challenges, there's reason for optimism. Accounting enrollments are up 7 percent year-over-year—the third consecutive year of growth—significantly outpacing other majors at 1.2 percent.

"We're doing something right," said Denise Froemming, CalCPA President and CEO. "What we're doing together is working, but I would say we cannot let our foot off."

Compensation pressures are easing with increased starting salaries helping attract and retain talent, particularly in California where firms compete with tech companies and finance firms. Meanwhile, cybersecurity has become "table stakes"—a foundational expectation rather than a differentiator.

The profession is also celebrating a milestone: Sen. Roger Niello introduced Senate Concurrent Resolution 111 to commemorate the 125th anniversary of California CPAs and recognize their more than a century-long role in building trust, accountability and integrity across the state’s economy and public institutions. The resolution also highlights the creation of the California Board of Accountancy and its longstanding consumer protection role overseeing the profession.

As CPAs navigate AI integration, expand advisory services, complex tax changes and policy challenges, one message emerged clearly from the town hall: firms that embrace change, invest in new capabilities and stay ahead of client expectations will be well-positioned for sustained growth.

"We need to make sure that we, as a profession and our firms, are set and ready for what's coming," Phan emphasized. "Firms have to be able to be prepared in order to be resilient and stay relevant, going into the future."

Check out the full Town Hall on demand by registering and accessing the event in your Activities. And be a part of the next Town Hall conversation on March 24.