As a California LLC, you are responsible for filing the correct tax forms and complying with California law.
A limited liability company, or LLC, is a type of business organization that offers LLC owners a variety of advantages and tax benefits.
If you have an LLC registered in California, you've undoubtedly pondered what IRS tax forms your California LLC should submit each year.
The business structure will determine this and the LLC's taxation election when it registers with the California Secretary of State.
California Single-Member LLC taxes
In California, a single-member LLC is a limited liability company with only one owner.
This type of LLC is not required to file a separate income tax return.
It is treated as a sole proprietorship (a disregarded entity); the single member's personal income tax return will include income and expenses.
This is known as pass-through taxation because all business income and losses are "passed through" to the LLC member and are included on the individual's personal tax return.
The single-member LLC in California must file a Form 1040, Entity Classification Election, with the Internal Revenue Service.
Every single-member LLC in California must pay the $800 Franchise Tax estimated fee each year to the California Franchise Tax Board.
If your LLC's annual gross sales are more than $250,000, you will be required to pay an additional yearly LLC fee.
To pay the franchise tax to the Franchise Tax Board, you must file Form 568 and pay the LLC fee.
Read More: Cost to Start an LLC in California
California Multi-Member LLC Taxes
California LLCs with multiple members are treated as partnerships for tax purposes.
This means that each member must report their share of profits on a separate Schedule K-‐‑I (568), Partner's Share of LLC's Income, Deductions, Credits, etc., filed with the member's California personal income tax return.
To pay these federal taxes, you need to file IRS Form 1065.
Like single-member LLC in California, multi-member LLCs need to pay their franchise tax to the California Franchise Tax Board.
California LLC Corporation Taxes
Single-member and multi-member LLCs in California can choose to be taxed as corporations by filing Form 2553.
California taxes corporate profits at a flat corporate rate.
The annual franchise tax in California is currently calculated at a fixed 8.84% of net income from business transactions conducted in the state.
If your LLC is taxed as a corporation, you will need to pay this LLC tax and use the state's corporation income tax return (IRS Form 100) for it.
Keep in mind that there's a difference between an S corporation and a C corporation in how they pay the taxes.
You pay federal income tax on your C corporation profits, as well as any money you earn as a business owner or employee.
The owners of S corps, on the other hand, report the LLC's revenue on their personal tax returns as personal income.
Initial and Biennial Tax
From the date you file your LLC Articles of Organization, you will have 90 days to file the initial information statement through the Secretary of State website.
The filing fee for the initial statement is $20, and you can file online or by mail.
Every LLC in Califonia is under the obligation to repeat this process every two years. The biennial statement fee is $20, and you can submit it online or by mail.
The filing deadline for updates to your LLC's articles of organization is two years following the anniversary month of its founding.
The statement of information should include the following information:
- Information about the LLC's officers, managers, or members.
- The address of your business in California and any changes to that location.
- A statement indicating if there have been any changes made to its management structure since it was originally formed.
- Your registered agent information
If your business entity has employees, you must withhold and pay employment taxes.
This includes federal, state, and local income tax, social security tax, medicare tax, and unemployment insurance tax.
Several different employer taxes may apply to your California limited liability company.
You will need to file the appropriate forms with the IRS and state agencies to report and pay each tax.
Employer taxes are payable to the California Employment Development Department (EDD) after completing your registration, either online or through Form DE-1.
Withholding taxes are paid quarterly basis through Forms DE-88ALL and DE-9.
What Is the Minimum Tax for LLC in California?
Limited liability companies in California pay an annual minimum franchise tax of $800, provided that they are not treated as corporations for tax purposes.
Suppose your LLC's total annual gross sales exceed $250,000, an additional tax of $.00035 per dollar of gross income over $250,000.
You may also be required to pay other state taxes, such as sales and use tax or excise tax.
For more information, consult the California Franchise Tax Board's website.
What Is the Due Date for a California LLC Tax Return?
The return dues date for single-member LLCs is the 15th day of the 3rd month after the LLC's tax year-end.
The same dates apply to LLCs classified as partnerships and S corporations, while C corporations have to file their annual LLC tax no later than the 15th day of the 4th month after the end of the tax year.
Additional dates can be applied to limited partnerships or series LLCs.
Read More: When Is the California LLC Tax Due Date?
Do You Have to Pay Taxes on a Foreign LLC in California?
Yes. Every business entity conducting business in California needs to pay the annual tax, estimated at $800.
The tax can be filed and paid online, and you will receive a confirmation number for your records.
The Franchise Tax Board (FTB) is the governing body responsible for taxation in California.
You can contact them with any questions or visit their website for more information.
What Is the CA Employer Tax Rate?
Each employer pays 6.2% on the first $7,000 in compensation paid to each employee in a calendar year.
New employers pay 3.4% of the total compensation paid to veteran employees for the first two to three years in a calendar year.
The employer tax rate is changeable and can be subject to the company's profitability, location and size.
The state has a progressive rate system for calculating taxes that apply to different income levels.
You will need your social security number or individual taxpayer identification number to file.
Do Businesses Pay Sales Tax in California?
A California LLC pays sales tax if it sells taxable items in California.
The type of sales tax the LLC pays depends on the county where it is located.
The California Department of Tax and Fee Administration administers sales and use taxes in California.
You can find more information about which taxes to pay and how to file your returns on the CDTFA website.
Is There a Self-Employment Tax in California?
Single-member LLCs in California are treated as disregarded entities for income tax purposes, and they have to pay self-employment taxes.
Your tax reporting will be simple if the LLC is taxed as a disregarded entity.
You can use Schedule C to report all of your business income and expenses on the same form that you would use for any other sole proprietorship.
The self-employment tax rate is currently 15.3 percent, 12.4% of which goes to Social Security and 2.9% to Medicare without a limit on the amount collectible.
California LLC Tax Forms: What You Need to Know
California business law is complex, and many small businesses are unaware of what they need to do to keep their company compliant after the business formation.
The penalties for not following the law can be severe, including the dissolution of your LLC if you've failed to file taxes or complete other requirements.
With so much at stake, it pays to consult with a professional who has experience navigating this area of the law on behalf of clients.