CA LLC Fee: Everything You Need to Know
Understanding your CA LLC fee helps you budget your business's expenses so you don't run into any financial surprises.4 min read
CA LLC Fee
Understanding your CA LLC fee helps you budget your business's expenses so you don't run into any financial surprises.
California LLC Tax Schedule (2001 to present)
The California tax is $800 (no LLC fee) if the income is $250,000 or less; the tax is $1,700 ($900 LLC fee, $800 LLC tax if the income is between $250,000 and $499,999; is $3,300 ($2,500 LLC fee, $800 LLC tax) if the income falls between $500,000 and $999,999; is $6,800 ($6,000 LLC fee, $800 LLC tax) if the income is between $1,000,000 and $4,999,999; for any income that is greater than $5,000,000 in a single fiscal year, the tax is $12,590 ($11,790 LLC fee, $800 LLC tax).
As may be evident, the $800 a year is a standard tax for all LLCs doing business within California, no matter how well or poorly they do. Prorates are not given out for partial years even if the business operates for under a year during the fiscal calendar. However, there are exceptions in some cases; for example, if a company does zero business, if they are a nonprofit with a tax exemption, if they are an LLC whose only member is an armed US forces veteran, or if they are an LLC switching to an S corporation taxation status.
An LLCs total income is the total amount of money they bring in from California, which is a change from previous years. Before 2007, California’s franchise tax board (also known as FTB) originally taxed any income from Californian LLC companies (also known as limited liability companies). Two court cases changed that and established a new precedent: Northwest Energetic Services, LLC vs. California Franchise Tax Board (2008) and Ventas Finance I, LLC vs. Franchise Tax Board (also of 2008). From then on, the California franchise tax board could tax money that came from California business.
Since those court cases, if any LLCs overpay their taxes based off of pre-2007 taxation practices, they can request a refund.
The LLC tax is collected from LLCs for simply doing business in the state of California. If it is not paid, it is cumulative—meaning the balance will only increase year to year if it is not paid (along with any late charges, too, of course). The LLC fee, on the other hand, is of course not static, and changes year to year depending on how well the LLC does during the fiscal year. LLCs must pay both state and federal taxes each year. Again, the LLC tax is always $800, but the LLC fee will change depending on how much the company does.
California LLC Forms
LLCs doing business in California (and who are not classified as corporations), are expected to file form 568 (limited liability income company return of income), and are also expected to pay the $800 LLC tax, and fee if necessary). LLCs that aren’t required to pay the LLC tax of $800 because they meet requirements mentioned above, should instead file form 565 (also known as the Partnership Return of Income. At that time, the yearly LLC Franchise tax that is normally filed with the 3522 form (meaning the LLC tax voucher) should be submitted by the 15th day of the 4th month after the LLC was filed. From there on out, the 3522 form must be turned in by the April fifteenth year to year.
Increased Self-Employment Tax
LLCs members should know that they have an increased self-employment tax as compared to standard self-employment tax rates. In fact, each and every member of the LLC does (it doesn’t matter who’s managing the company). If there is only one member in the LLC, the LLC is thought of as a disregarded entity (and will also be treated as such even it is set as a partnership with 2+ members; however, the LLC can choose to be treated differently by the state of Californian if it decides to change its status.
Any net income that is brought in by business from the LLC is treated the same as self-employment income, which is taxed at a rate of 15.3%. This is in addition to any federal or state taxes. If that same LLC were a corporation (owned and operated in the state of California), it wouldn’t have to pay that 15.3% tax. Furthermore, if it was an S corporation in the state of Californian, it would only pay 7.65% on salaries and employment taxes.
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