Taxes for California LLCs
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Every LLC in California is required to pay specific taxes and fees each year. An LLC in California can be classified by the California Franchise Tax Board as partnership, a corporation or a disregarded entity. This guide assumes that an LLC has not sought to change its tax status, and thus will be treated as a partnership (the default tax status for LLCs).
Please note: LLC taxes are a complex undertaking. This guide should not be used as tax advice, but rather a broad outline of the general tax and fee requirements for limited liability companies in California.
Doing Business in California
If your California LLC has “done business in California” for at least one day of the year, you’ll have to pay the California Franchise Tax.
For taxable years beginning on or after January 1, 2011, an LLC meets the state requirement of “doing business in California” if it does any of the following:
- Your LLC is organized or commercially domiciled in California
- Your sales, including sales by agents and independent contractors, exceed the lesser of $536,446 or 25% of your LLC’s total sales
- Your LLC’s real property and tangible property in California exceeds the lesser of $53,644 or 25% of your LLC’s total real property and tangible property
- The amount paid in California by your LLC for compensation exceeds the lesser of $53,664 or 25% of the total compensation paid by your LLC
An LLC is considered to be doing business in the state if there is a member doing business on behalf of the company in California.
California Franchise Tax LLC Exemption
In 2020, California’s state legislature passed a bill exempting some businesses from paying the California Franchise Tax during their first taxable year. California LLCs, LPs, and LLPs formed between January 1, 2021 and December 31, 2021 do not have to pay the California Franchise Tax for their first taxable year. Those businesses will begin paying the California Franchise Tax during their second taxable year in business. See California Assembly Bill 85 for more information.
California LLC Annual Franchise Tax
A California LLC, like all entities in California, must pay the state’s annual Franchise Tax. This tax is $800 for all California LLCs.
The annual Franchise Tax is due the 15th day of the fourth month after the beginning of the tax year. You must file Form 3522 (LLC Tax Voucher). A late fee is assessed if the Franchise Tax is not paid on time.
Be sure to file the proper form if you are filing by mail (don’t try to pay the Franchise Tax on or with your Form 568). You can also file online. Online payments are assessed a 2.3% convenience fee.
California LLC Fee
California also imposes a yearly LLC Fee in addition to the Franchise Tax. This fee only affects LLCs with an annual income equal to or over $250,000. If your annual income falls below this, then you do not owe any fee.
For LLCs with annual income equal to or greater than $250,000, the fee is as follows:
|$250,000 to $499,000||$900|
|$500,000 to $999,999||$2500|
|$1,000,000 to $4,999,999||$6000|
|$5,000,000 and up||$11,790|
You must estimate the fee you will owe for the year and make an estimate fee payment by the 15th day of the sixth month of the current taxable year. The proper form is the FTB 3536 (Estimated Fee for LLCs). If your estimated payment is less than what you actually owe, you will be penalized. The penalty is equal to 10% of the amount your LLC owed for the year.
LLC Income: Form 568
Every year, your California LLC will have to file an LLC Return of Income (Form 568). This filing will take into account your Franchise Tax and LLC Fee, although you will not pay those taxes here. Think of the Form 568 as a master tax form where all of your LLC’s income, taxes, overages, withholding, etc. are listed and accounted for.
What’s Listed on the Form 568:
- Total LLC Income
- LLC Fee
- Annual LLC Tax
- Non-consenting Nonresident Members’ Tax Liability
- Over-payment From Previous Years
- Use Tax
- Value of LLC Assets, Liabilities and Capital
- Property Distributions
- Beneficial Interests in a Trust
- Ownership of Additional Businesses
- Income Deferment
- Tax Credits
- Members’ Shares of Income, Deductions, Credits
The above is not a complete list of all the information which must be reported on the Form 568. You can view the Form 568 and Instructions for more information.