I'm on L1 Visa in California and I'm aware that I need to pay Federal tax, California State Tax, FICA as well as Medicare taxes. My wife will be a non-working person in L2. I would like to know what would be the deductions as well as exemptions for myself and my wife. Also, will my relocation expenses be taxed also?

After you meet Substantial Presence Test, you can file joint return as married filing jointly. Then both of you will get standard deduction and exemption deductions.
You can also claim moving expenses. Read: Your U.S. Tax Return: Moving Expenses (http://taxipay.blogspot.com/2008/02/moving-expenses.html)

I believe your queston is whether the relocation reimbursements will be taxed as income.

It depends on whether the relocation reimbursements are paid to you or to the moving company/airline, and whther it is a lump sum or it is in response to an expense report.