California LLC Tax Schedule (2001 to present)

The California tax is:

  • $800 (no LLC fee) if the income is $250,000 or less
  • $1,700 ($900 LLC fee, $800 LLC tax) if the income is between $250,000 and $499,999
  • $3,300 ($2,500 LLC fee, $800 LLC tax) if the income falls between $500,000 and $999,999
  • $6,800 ($6,000 LLC fee, $800 LLC tax) if the income is between $1,000,000 and $4,999,999
  • For 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 U.S. 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 v. California Franchise Tax Board (2008) and Ventas Finance I, LLC v. 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 on 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 the 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 Form 3522 (meaning the LLC tax voucher) should be submitted by the 15th day of the fourth month after the LLC was filed. From there on out, the Form 3522 must be turned in by April 15, 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 two or more 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 percent. 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 percent tax. Furthermore, if it was an S corporation in the state of Californian, it would only pay 7.65 percent on salaries and employment taxes.

Potential for Higher Income Tax

One potential reason for companies in California to avoid doing business as an LLC is related to higher chances that the LLC's members will be required to pay income taxes on money they haven't actually received. If the limited liability company in question uses profits for things like acquiring assets or building inventory, its members will be expected to pay a self-employment on the values associated with these things, despite not having received any of this money as income.

Because of the many disadvantages in terms of taxation that California LLCs are prone to face, it can be quite expensive to operate a business under this structure. With that in mind, it's usually in the best interest of a California-based company's owners to do business as a corporation instead of an LLC. The exception is if the company in question intends to own real estate property.

Statement of Information

A Statement of Information is used to provide the state of California with your company's current contact information. There is a filing fee of $20 for each year that you submit a Statement of Information to the state. This fee can be made payable directly to the secretary of state using either a money order or check. You will be required to submit your company's first Statement of Information no later than 90 days after the date that the state approves your limited liability company. After that, you'll be required to submit a new Statement of Information at a minimum of every two years.

Every required submission needs to be made before the annual anniversary of your company's date of approval. For reference, this is the date that your company's Articles of Organization were officially approved and recognized by the state of California. Your Statement of Information can be mailed, along with the required filing fees, to the office of the Secretary of State's Statement of Information Unit at P.O. Box 944230, Sacramento, CA 9244-2300.

California Fees for Incorporation

In the state of California, the corporate tax rate is set at 8.84 percent. This is comparable to the rates found in other states in which incorporation is popular and also provides a few deductions, exemptions, and additional strategies that can help to reduce your overall costs. There may also be additional advantages for you to consider, depending on the kind of corporation you plan to form.

Keep in mind that there are a number of fees associated with certain aspects of the process of incorporating in California. Reserving your company's name, for example, carries a fee that can be paid in the city or county you're incorporating in. The exact amount of this fee will vary depending on your specific location.

When you file your Articles of Incorporation with the secretary of state, you'll need to pay a $100 filing fee, as well as an additional $15 in handling fees. You'll also need to provide an initial report that lists detailed information related to your company. This carries a $25 filing fee and an additional service fee of $75. Every year afterward, you'll need to file an annual report, along with another $25 filing fee. The $75 handling fee, however, only has to be paid with your initial filing.

Specialized business licensing will likely require additional fees, which will vary depending on the licenses your business will be required to maintain in order to conduct business in California. In most cases, these fees will range between $50 and $100 for licenses pertaining to small businesses. Depending on the type of business you're starting, though, you may also be required to obtain industry-specific licenses in addition to this.

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