The California corporate tax return instructions are vital for any small business owner in the state because of the fact that business taxes in California are harsher than in most other states. Although California is an excellent place to live due to its warm climate, natural landscapes, and thriving metropolitan areas, both personal and business income taxes are considerably higher than the national average.

Not only that, but California is one of a small number of states that impose personal and business taxes on S Corporations or limited liability companies. On a federal level, it is considered double taxation to tax both the business owner and the business itself, but that doesn't apply here, as they are both taxed. Add the double taxation to the already high costs and standard of living, and you get a situation where it's very hard to get a business up and running.

Types of Business Taxes in California

There are three different types of taxes for business in California. Almost all businesses in the state pay one or more of these taxes.

  • Corporate tax: This applies to corporations as well as limited liability companies that want corporation status. The tax rate is calculated based on all taxable income collected within the state, and it's percentage is 8.84%, which is higher than the national average.
  • Franchise tax: This must be paid by S Corporations, limited partnerships, and limited liability companies as well as limited liability partnerships. It also applies to regular corporations that do not register a positive net income, therefore paying the franchise tax instead of the corporate tax.
  • Alternative minimum tax: The alternative minimum tax was created as a way to prevent companies from writing down income in order to prevent paying taxes. It's rate is 6.65% and applies to corporations and limited liability companies that want corporation status.

Tax Return Instructions Based on Company Type

Traditional corporations pay the 8.84% corporate tax or the 6.65% alternative minimum tax depending on the declared income number. Any personal income that the company's shareholders make is also subject to taxation, with the 33% tax rate on dividends being one of the highest in the country.

S Corporations pay a franchise tax of 1.5% of the net income. There is, however, a minimum tax of $800, even when the company reported a negative net income. Then the income is taxed again by the business owners that must pay personal taxes for what they get out of the company.

Limited liability companies pay a franchise tax that's calculated according to the company's gross income. It can go from the $800 minimum to $11,790 for companies registering a gross income higher than $5 million.

Partnerships of any kind must pay the $800 minimum franchise tax as well as any personal income taxes.

Filing Your Tax Return in California

All corporations within the state of California must file their income tax that they owe the state through Form 100. The California Franchise Tax Board provides the document. Here are the steps for completing it:

  • Fill in the start and end dates of your financial year.
  • Write down the company's name, address, and identifying numbers.
  • Answer the Schedule Q questions on the first two pages.
  • Calculate your net income and write it down on the first page.
  • Compute your gains and losses so you can calculate the amount due in taxes.
  • Fill in the rest of the document and have an officer sign on the second page and write in the current date.

Even if your company is losing money, you are still required to file a tax return. At the very least, you will be paying the $800 minimum tax. California law requires all businesses to update their records by filing a statement with the local Secretary of State, either once a year or every two years.

Under California law, you can be taxed on income from any business endeavor within the state boundaries, even if you or your company are not based in California. If you do business both in California and in other states, you will need to calculate your income based on where it was created and pay your taxes accordingly.

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