California LLC Fee: Everything You Need to Know
California LLC fee and tax are determined at the state level based on the state’s tax schedule.4 min read
California LLC Fee
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 amount of fees. If an LLC is earning less than $250,000 per fiscal year, the LLC would be required to pay eight hundred dollars in taxes, with no LLC fee.
If an LLC is earning between $250,000 and $499,999 per year, the tax is eight hundred dollars, and the fee is nine hundred dollars. The LLC would thus be required to pay $1,700.00. If an LLC is earning between $500,000 and $999,999 per year, the LLC would be required to pay eight hundred dollars 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 eight hundred dollars, but the fee will be $6,000. For any LLC earning anything above 5 million dollars per year, the tax is still eight hundred, 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 eight hundred dollars 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 eight hundred dollars 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?
All LLCs (not classified as a corporation) that are doing business in 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).
LLCs that have to file in California to report California source income but are not subject to the minimum franchise tax of $800 and the LLC fee must file Form 565, Partnership Return of Income, instead of 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.
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 one hundred dollars.
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 dollar charge to the corporation when it files a Statement of Information. Having an LLC also requires ongoing fees. There is a yearly eight hundred dollar fee which is due three months after the LLC is created and every April 15 afterward.
Is the California LLC Tax ($800) and/or LLC Fee ($900+) deductible on personal return (SMLLC disregarded)?
Yes, according to the IRS Other Types of Business Expenses website.
You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. According to the California Tax Service Center, the annual tax is NOT deductible, but generally the limited liability fee is considered a deductible ordinary and necessary business expense.
Tax on Gross Receipts
The State of California imposes a second "Gross Receipts Tax" on every California LLC, but not on any California corporation. Like most other forms of businesses, a California corporation only pays tax on its net taxable income.
Net income generated by the LLC is treated as self-employment income and taxed at around 15 percent. By contrast, the shareholders of a California corporation do not pay any self-employment tax; they only pay a 15 percent capital gains tax on profit distributions.
Higher Income Tax
There is also a high probability that the LLC members will have to pay income taxes on money they never actually received. If the LLC uses some of its profit to build inventory or to acquire assets, the members will be required to pay self-employment tax on the value of the inventory even though they never received a dime.
If you need help creating an LLC in California, you can post your legal need on UpCounsel’s marketplace.