Key Takeaways

  • California LLCs must pay an $800 annual franchise tax, regardless of income, with limited exceptions.
  • Additional LLC fees are based on gross receipts, ranging from $900 to $11,790.
  • The question “is CA LLC fee deductible for CA return” depends on whether the payment is considered a business expense or state tax. Generally, the annual $800 tax is not deductible on the California return, but it may qualify as a deductible business expense for federal purposes.
  • California LLC members also face self-employment tax and potentially higher overall state taxes compared to corporations.
  • New businesses sometimes qualify for first-year exemptions from the $800 minimum tax.

California LLC fee and tax are determined at the state level based on the state's tax schedule. The total amount of California taxes an LLC will need to pay is the amount of taxes plus the number of fees. If an LLC is earning less than $250,000 per fiscal year, the LLC would be required to pay $800 in taxes, with no LLC fee.

If an LLC is earning between $250,000 and $499,999 per year, the tax is $800 and the fee is $900. The LLC would thus be required to pay $1,700. If an LLC is earning between $500,000 and $999,999 per year, the LLC would be required to pay $800 in taxes and $2,500 in fees, paying a total of $3,300. If an LLC is making anywhere between 1 million dollars and $4,999,999 per year, the tax is still $800, but the fee will be $6,000. For any LLC earning anything above 5 million dollars per year, the tax is still $800, but the fee will now be $11,790. The LLC tax accumulates each year until the LLC is dissolved. These fees are in addition to any U.S. federal income taxes.

There is also an annual franchise tax of $800 that an LLC will have to pay if they are registered to conduct business in California. This fee will apply to all California businesses, as well as foreign businesses, and applies even if the LLC doesn't do business or operates at a loss. An LLC will also have to pay the full $800 even if it registers in the middle of the year. However, there are a few exceptions to this rule:

  • If no business is being done during certain short periods of time
  • Nonprofit organizations
  • LLCs owned solely by members of the Army that are deployed
  • S corporations

Do You Have to Pay the $800 California LLC Fee the First Year?

Any and all limited liability companies that aren't classified as corporations and conduct business in the state of California, or those that have filed an Article of Organization or Certificate of Registration with the secretary of state must file a Form 568, Limited Liability Company Return of Income, pay the annual minimum franchise tax of $800, and LLC fee (if applicable).

Limited liability companies that are required to file in California to report California-source income, but aren't subject to the minimum $800 franchise tax and the LLC fees, will need to file a Form 565, Partnership Return of Income, rather than Form 568, Limited Liability Company Return of Income.

The $800 minimum tax prepayment is due by the 15th day of the fourth month after LLC formation.

First-Year Exemptions and Grace Periods

As of recent legislative changes, some California LLCs may qualify for relief from the $800 annual minimum franchise tax during their first taxable year. This exemption applies primarily to LLCs formed or registered after January 1, 2021. However, the exemption only covers the $800 franchise tax—it does not apply to the additional gross receipts–based LLC fee if the company’s revenues exceed $250,000.

Startups should carefully review their filing date, as the exemption is not retroactive for earlier LLCs. Even with this grace period, the annual tax obligation begins in the second taxable year, so business owners should plan accordingly for cash flow and compliance.

How Much Is California's Corporate Tax?

The corporate tax rate in California is 8.84 percent. This rate is comparable to many other states. There are many exemptions to this tax, as well as deductions and other approaches to reduce the tax fee.

California Incorporation Fees

California imposes fees when a business is looking to incorporate in California because of the various stages of the process. For example, California will impose a fee for when a corporation registers its name. This fee is determined based on location. There is also a filing fee of $100.

Once incorporated, a business must file a detailed report about the corporation and will incur a fee of $25-$75. This report needs to be filed annually, along with a service charge of $25. In addition, if your business needs a specific license, it will also be charged a fee. For example, most municipalities will charge anywhere between $50 to $100 for a small business license.

California LLC Fees and Taxes

Forming an LLC in California will be cheaper than filing as a corporation. It costs about $85. However, there is also a $20 charge to the corporation when it files a Statement of Information. Having an LLC also requires ongoing fees. There is a yearly $800 fee which is due three months after the LLC is created and every April 15 afterward.

Payment Deadlines and Compliance Requirements

California imposes strict filing and payment deadlines for LLC fees. LLCs must submit:

  • Form 568 (LLC Return of Income): Due by the 15th day of the 4th month of the taxable year (usually April 15 for calendar-year LLCs).
  • Estimated LLC Fee Payments (Form 3536): Required if projected gross receipts exceed $250,000. These prepayments are due by the 15th day of the 6th month of the taxable year.

Failure to file or pay on time results in penalties and accrued interest. The Franchise Tax Board (FTB) may also suspend or forfeit an LLC’s status, which can block the business from entering contracts or defending itself in court.

Is the California LLC Tax ($800) and/or LLC Fee ($900+) Deductible on Personal Return (SMLLC disregarded)?

According to information available on the Internal Revenue Service's website, the answer is yes.

You are able to deduct a number of local, state, foreign, and federal taxes that can be directly attributed to your business as business-related expenses. According to information provided by the California Tax Service Center, annual taxes are not considered to be deductible, but generally speaking, these limited liability fees are considered to be deductible as necessary and ordinary business expenses.

Is CA LLC Fee Deductible for CA Return?

A common question is whether the required payments—especially the annual $800 franchise tax and the gross receipts–based LLC fee—are deductible for state or federal purposes.

  • For California state returns: The $800 franchise tax is generally not deductible on the California return itself. The state considers it a minimum tax obligation rather than a business expense.
  • For federal tax purposes: Both the annual tax and the additional LLC fee may be deductible as ordinary and necessary business expenses, especially for single-member LLCs treated as disregarded entities or multi-member LLCs taxed as partnerships.
  • Practical effect: Business owners should not expect relief from these costs when filing their California return, but they may claim deductions on their federal return to reduce overall tax liability.

Because rules differ between state and federal systems, it’s wise to consult a tax professional to ensure proper reporting and to avoid double taxation issues.

Tax on Gross Receipts

California also imposes a "Gross Receipts Tax" on LLCs operating in the state, but not on corporations. Like most other forms of businesses, a California corporation only pays tax on net taxable income. In the state of California, the taxes a corporation are expected to pay are based on the company's net revenues. A limited liability company, however, will see their tax rates based on gross revenue.

Because most companies will need to bring in a minimum of $250,000 in terms of gross receipts to just break even, California LLCs are required to pay higher franchise taxes than corporations, even if they are operating at significant financial losses. In comparison, corporations in the state of California are not subject to these gross receipt taxes. Like many other business types, such as trusts, partnerships, and sole proprietorships, corporations in California are only required to pay taxes on their net taxable income.

The exception to this is the state minimum of $800 in franchise taxes that are then applied to the total of taxes the company owes.

California LLC Fees vs. Corporate Taxes

One of the unique burdens for LLCs in California is the gross receipts fee, which applies even when the company has low net profits. By contrast, corporations are taxed only on net taxable income. For example:

  • An LLC with $1 million in gross receipts but slim profit margins could face an $800 tax plus a $6,000 fee.
  • A C corporation with the same receipts but little profit would pay tax based on its net taxable income—potentially far less.

This structure means LLCs can face a disproportionately high effective tax rate compared to corporations. For businesses with high revenue but narrow margins, it may be more cost-efficient to consider alternative structures like S corporations.

Self-Employment Tax

Another reason to consider avoiding the formation of an LLC in California is the fact that each member will be expected to pay higher self-employment taxes. In California, limited liability companies are treated as either disregarded entities, such as a sole proprietorship, when it has only one member, or a partnership if it has more than one member unless it specifically elects to be treated in a different way.

Net income generated by the LLC is treated as self-employment income and taxed at around 15 percent. In comparison, a corporation's shareholders are not subject to self-employment taxes. Rather, they pay only a 15 percent capital gains tax on any applicable profit distributions.

S corporations in California are only required to pay 7.65 percent in employment taxes on their employees' and officers' declared salaries. Normally, S corporations in California provide their shareholders and employees with reasonable salaries that employment taxes are paid on. This is in addition to the balance on profits via dividends and isn't subject to payroll and income taxes. Instead, S corporations pay only the 15 percent capital gains tax rate.

Higher Income Tax

There is also a good chance that LLC members will be required to pay income taxes on money they haven't actually received as payment for their services. If the limited liability company, for example, uses profits to acquire assets or build up its inventory, its members may be required to pay self-employment tax on the value of these things even though they never received any of the money for themselves.

Frequently Asked Questions

  1. Do I have to pay the $800 LLC fee in the first year?
    Not always. LLCs formed after January 1, 2021, may qualify for a first-year exemption from the $800 franchise tax, but fees based on gross receipts still apply.
  2. Is CA LLC fee deductible for CA return?
    No, the $800 tax is not deductible on the California return. However, it can often be deducted as a business expense on your federal return.
  3. When are California LLC fees due?
    Form 568 is due by the 15th day of the 4th month of the taxable year, while estimated LLC fee payments (Form 3536) are due by the 15th day of the 6th month.
  4. What happens if I don’t pay California LLC fees?
    Penalties, interest, and possible suspension of your LLC’s status. A suspended LLC cannot legally operate, enter contracts, or defend itself in court.
  5. Are LLCs taxed more heavily than corporations in California?
    In some cases, yes. LLCs pay gross receipts fees regardless of profitability, while corporations are taxed only on net income.

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